Schmudget Blog


Supreme Court’s McCleary Decision Shows that Lawmakers Should Clean Up Tax Code to Invest in Schools

Posted by Kelli Smith at Nov 15, 2017 03:55 PM |
Filed under: State Revenue, Education
Statement by Misha Werschkul, executive director:
 
The Washington State Supreme Court has made it clear that the legislature must take more steps to fulfill its McCleary mandate to amply fund schools. Although lawmakers did smartly enact some new investments as part of their school funding plan this past session, the court has determined that the legislature must do more to set up every kid and every classroom for success by the 2018-19 school year. The way to strengthen investments in K-12 schools while supporting investments in other priorities that strengthen our communities – like behavioral health, health care, and early childhood education – is to clean up our tax code, not rely on more short-sighted, one-time fixes.

The Budget & Policy Center continues to recommend common-sense reforms that would clean up the tax code, such as: eliminating a harmful property tax limit that arbitrarily restricts resources available for schools (see our amicus brief to the Supreme Court on the topic); making the real estate excise tax more equitable; and closing the tax break on capital gains.
 

Ultimately, lawmakers must take steps to invest in our schools and our communities during the 2018 legislative session. The court has given the legislature until the end of the session to ensure that students, classrooms, and teachers have what they need on the first day of classes in 2018. The solutions are within reach if lawmakers get serious about cleaning up the tax code.

Three Reasons Why the House GOP Tax Plan is Bad for Washington State

Posted by Kelli Smith at Oct 30, 2017 03:20 PM |
Filed under: Federal Issues

Republican leaders in Washington, D.C. have introduced a harmful plan to give large tax cuts to the wealthiest few while jeopardizing funding for health care, education, and other investments that benefit working families. Take a look at our latest fact sheet to see how the plan would negatively impact Washingtonians with low and middle incomes.

This fact sheet was updated on November 15, 2017.

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 House GOP tax plan 11 15 2017

KIDS COUNT Report: Barriers to Opportunity Prevent Children of Color and Immigrant Children from Reaching Their Full Potential

The United States and Washington state are stronger when we harness the talents and drive of all people – including children – who will help build the nation’s future. For our country and state to reach our full economic, democratic, and moral potential, all children must have the opportunity to grow, develop, and thrive. A new Annie E. Casey Foundation report shows that too many young people of color are still facing barriers to a bright future, however. While there have been modest gains in terms of the well-being of kids of color in Washington state over the last three years, the report notes that families of diverse backgrounds, including immigrant families, struggle against barriers to success. Policymakers must enact policies to level the playing field for all kids.

2017_AECF_Race_for_Results

The Casey Foundation report, 2017 Race for Results: Building a Path to Opportunity for All Children, measures children’s progress on the national and state levels in key education, health, and economic milestones by racial and ethnic groups. It shows that, in Washington state, Latino children, Black children, and American Indian children have lower overall scores of wellness compared to White and Asian and Pacific Islander children. Specifically, the report uses a composite score of child wellness based on a range of data indicators – with 1 being the lowest score and 1,000 being the highest. Latino, Black, and American Indian children scored 401, 456, and 459 respectively, while White children and Asian Pacific Islander children scored 719 and 756.

The 2017 Race for Results report also highlights the fact that children in immigrant families face some notable barriers:

  • Two-thirds of Washington children in U.S.-born headed households live in households with a basic-needs income or greater (above 200 percent of the federal poverty level, or $40,320 for a family of three 2016), while just one in two children in immigrant families have an income sufficient to meet their basic needs. That income gap is larger in Washington than at the national level.
  • Children in immigrant families are less likely to grow up with a head of household who has at least a high school diploma.

More than 440,000 (28 percent) of Washington’s 1.6 million kids are children in immigrant families. Four out of five of immigrant children are children of color. Despite the challenges they face, children and young adults in immigrant families are also doing well on some measures:

  • Black and Asian Pacific Islander 3- and 4-year olds in immigrant families have the same or higher rates of enrollment in nursery school, preschool, or kindergarten than the Washington state average overall (60 percent).
  • Young adults aged 19 to 26 in immigrant families also tend to be working or enrolled in a degree, training, or certificate program at the same rates as their U.S.-born peers.
  • Black, White, and Asian Pacific Islander young adults in immigrant families are more likely to have an associate’s degree or other advanced degree.

The report underscores the formidable risks to healthy child development in immigrant families and for children of color that are caused by issues such as lack of access to living-wage jobs, limited educational opportunities, and family separation. These risks are further exacerbated by policies that limit resources and restrict access. Immigrant families are also facing policy proposals that threaten the residency status of 800,000 young people who have been granted a reprieve from fear of deportation through the Deferred Action for Childhood Arrivals (DACA) program. Washington state is home to 19,000 of the 800,000 DACA recipients.

All children need to reach their full potential if we are to reach ours as a nation. This means lawmakers must break down systemic barriers to opportunity placed in front of many children of color and immigrant children. With regard to immigrant children in particular, much of this country’s future success depends on how we equip immigrant families with the tools and skills that enable them to contribute to local economies – as immigrants have done since the founding of this country. The 2017 Race for Results report makes several recommendations to maximize children’s access to opportunity:

  • Keep families together. Immigration authorities and family courts can protect kids from adverse experiences by exercising discretion in choosing whether to separate parents from their children.
  • Help kids in communities of color, both immigrant and U.S.-born, to meet key developmental milestones. Policymakers can do more to link eligible families to quality early learning led by culturally competent teachers. More states, universities, and colleges can help qualified students pay for college without regard to immigration status.
  • Increase economic opportunity. Among the actions state policymakers can take is to increase access to occupational licenses and credentials to income-earning parents who entered their professions in foreign countries, boosting the prospects for higher household income.

To read more about how Washington’s kids are progressing on key milestones across racial and ethnic groups compared to the nation and other states, read the full 2017 Race for Results: Building a Path to Opportunity for All Children report and our KIDS COUNT in Washington press release.

Trump-GOP’s Tax Plan Will Give Wealthiest 1 Percent of Washingtonians Even More Preferential Treatment

Posted by Kelli Smith at Oct 11, 2017 05:15 PM |
Filed under: Federal Issues
By Kelli Smith, policy analyst, and Andy Nicholas, associate director of fiscal policy

The numbers on the Trump-GOP federal tax plan make one thing abundantly clear: The plan would be an enormous boon to the wealthiest 1 percent of Washingtonians. The numbers also make it clear that it is not a plan built to expand opportunities for working families. The average tax break for those in the top 1 percent would be 1,000 times higher than for those in the bottom fifth of Washington’s households. These tax cuts would drain federal coffers by trillions of dollars over the next decade. This could result in immense cuts to education, health care, infrastructure, child care, and other essential public investments that benefit us all.


In Washington state in particular, people should be especially concerned about the proposal to gut the federal tax code. That’s because our state tax code is already heavily rigged in favor of the wealthiest and most powerful, and it disproportionately harms people of color. People with low and middle incomes already pay up to seven times more in state and local taxes as a share of their income than the top 1 percent. And this takes a heavier toll on many Black, American Indian, and Latino Washingtonians, who make up a disproportionately larger share of those income groups than whites do – because of historically racist policies that have denied them equitable access to opportunity. 

According to analysis by the Institute on Taxation and Economic Policy, 63 percent of federal tax cuts for Washingtonians in the Trump-GOP tax plan would go to the top 1 percent. As the chart below shows, people with low and middle incomes would see a very small tax reduction on average. While people in the lowest-income group in Washington state would see an average tax cut of $100 under the plan, people in the wealthiest 1 percent would receive an average tax cut of more than $100,000. (Of note, the average annual income among the top 1 percent of Washingtonians is about $2 million.)

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avg_tax_cut_by_inc

The enormity of the tax cuts under this plan can’t be rationalized by the top 1 percent's comparatively higher income levels, either. Even when Trump’s proposed tax cuts are calculated as a share of income, the tax cuts at the top would be much higher than those at the bottom. The wealthiest 1 percent would get a tax cut that amounts to a 5.2 percent of their annual income. By contrast, those making the least would see a tax cut that amounts to just 0.6 percent of their incomes. People in the middle don’t fare much better. In fact, every income group in the bottom 95 percent would see an average tax cut that amounts to less than 1 percent of their income. In other words, any lawmakers who are saying this plan is designed to help the middle class are lying. 

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avg_cut_as_share_of_income

Further, it’s important to note that not all Americans – or Washingtonians – would get a tax cut under this plan. One in six Washingtonians would actually see a tax hike under the plan. Ultimately, many of those in the middle would contribute more while the top 1 percent get a break. That is not sound policy – especially in our state, where working families are already paying more than their fair share while the wealthiest get a special deal. 

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share_with_increase

Adding insult to injury, this plan does not include other sources of revenue to offset the huge tax cuts for millionaires. As a result, these giveaways will create a gaping hole in the federal budget. Without other revenue to fill that hole, investments that strengthen our economy will be at risk. And it’s a safe assumption, given this presidential administration, that those cuts won’t come at the expense of the top 1 percent. Instead, the shortfall will be used as an excuse, either now or in the future, to undermine investments that help low- and middle-income Americans – by cutting programs like health care, education, job training, and the like. 

This tax plan, the latest in a series of federal proposals designed to benefit the very wealthiest, lacks any foresight about the real needs of everyday Americans now and into the future. Washingtonians need a plan that actually helps all families have the opportunity to thrive – not a plan that only serves to exacerbate our upside-down tax code. 

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New Forecast: Big Boost in Resources for Schools, But Revenue Still Stuck at Recession Levels

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst

The latest Washington state revenue forecast confirms that the revenue measures enacted during this year’s legislative session, in conjunction with the growing economy, will generate some $6.1 billion in new state resources for schools and other community investments over the next four years. After years of gridlock in Olympia over raising new revenue to fund schools, it is a significant victory for Washingtonians that lawmakers were finally able to come together in 2017 and make needed investments that will benefit all our communities. To ensure the well-being of those communities now and in the future, lawmakers must strengthen and build upon these kinds of gains. If they don’t take steps to clean up Washington’s tax code, these new and much-needed resources for our most important priorities could rapidly evaporate in the coming years.

The Economic and Revenue Forecast Council now projects a boost of $2.4 billion in state revenue over the 2017-19 budget cycle, a nearly 6 percent increase in revenue since the previous forecast in June. Almost $2.1 billion of that revenue growth comes from revenue bills the legislature enacted earlier this year as part of the state’s ongoing effort to fully fund education under the state Supreme Court McCleary case, including: a new state property tax; an extension of the sales tax and business tax to out-of-state online retailers; and the closure of several wasteful tax breaks. 

The Council also projects a $3.7 billion uptick in revenues during the following 2019-21 budget cycle, most of which is also attributable to the new taxes enacted this year.

These critical new resources will help ensure great schools for our kids in the short term. Nevertheless, in order to protect these and other essential resources for our communities over the long term, lawmakers still need to address the fundamental structural problems with our state’s upside-down tax code – in which the people with the least pay the most in state and local taxes as a share of income. As the chart below shows, even after accounting for the impact of the new taxes enacted this year, state tax collections will remain mired at 2009 (the lowest point of the Great Recession) levels for the foreseeable future. After adjusting for economic growth, tax resources in 2021 are projected to remain virtually unchanged from 2009 levels. 

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Sept_2017_revenue_forecast

Without action, the gains in funding for schools and other priorities achieved this year will likely erode after 2021. That’s because a damaging law that arbitrarily suppresses state property tax collections, which is suspended for the next four years as part of the legislature’s school funding “fix,” is scheduled to be reinstated in 2022. As we wrote in our amicus brief to the Washington State Supreme Court, and summarized in this recent post, this Tim Eyman-backed revenue restriction systematically starves schools of adequate funding year after year. And once it goes back into effect, it will quickly erase much of what lawmakers achieved this year in making necessary investments in kids and schools.

The bottom line is that lawmakers can – and should – build on the progress they made this year. If they want to ensure sustainable resources that enable our communities to thrive, lawmakers must look to the future and act now to secure our state’s well-being, not just this year or next, but for many years to come. Our Accountable Washington revenue reform proposal offers a common-sense path toward creating an equitable tax code that adequately supports schools and other investments that benefit us all.

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New Census Numbers: To Build Thriving Communities, Invest in Removing Barriers to Economic Security

New data released by the U.S. Census Bureau shows that there is some good news when it comes to poverty rates and access to health care in our state. At the same time, the data shows that many Washingtonians – in particular, some communities of color, women, and people with disabilities – still face barriers to economic security. The numbers make it clear that to build thriving communities, our policymakers must invest in priorities that remove obstacles to prosperity for Washingtonians.

First the good news: Last year, the poverty rate in Washington state declined slightly to 11.3 percent from 12.2 percent in 2015. And between 2013 and 2016, the rate of people with health insurance increased to 94 percent from 86 percent.

The fact that fewer Washingtonians are living in poverty is likely due to economic growth and a low unemployment rate. And the insurance rate is more evidence that the Affordable Care Act has been extremely effective in ensuring more people can afford to have access to a doctor and preventive health services.

Yet the numbers also reveal that despite economic growth, far too many residents of Washington face barriers to economic security, especially people of color, women, and people with disabilities. In fact, the poverty rate for some communities of color in Washington is nearly two to three times that of whites. Systemic barriers are impacting many people’s ability to put food on the table and pay for their housing. For example:

  • Twenty-seven percent of American Indian/Alaska Natives, 23 percent of Blacks, 20 percent of Native Hawaiian/Pacific Islanders, and 19 percent of Latinos live in poverty.
  • Among full-time workers, women earned 75 percent of what men earned in 2016.
  • One in four working age Washingtonians with a disability live below the federal poverty line, compared to one in ten adults without disabilities. 


Further, when looking at the data over a longer time period, they show those facing the greatest hardship are not reaping the benefits of economic growth. In fact, more people in Washington are living in deep poverty – below 50 percent of the federal poverty line, which is less than $10,080 a year for a family of three in 2016 – than in 2006. The number of Washingtonians living in deep poverty grew by 17 percent between over the last decade (See figure below).

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Washingtonians in Deep Poverty

Our economy and our communities will be stronger when everyone is able to not only to make ends meet, but also to have a better future – and when lawmakers act to undo systemic and institutional barriers that prevent people from having equal access to opportunity.

While it is good news that there is declining poverty overall and greater rates of health insurance coverage in our state, the new Census numbers nevertheless underscore that too many people are still facing financial hardship. In order to build thriving communities, lawmakers in our state need to make investments that enable all our residents to thrive. Further, federal policymakers must protect essential health care coverage – pushing back against continued efforts to repeal the Affordable Care Act – and they must protect programs that ensure that when people hit hard times, they don’t go without the basics.

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Why It’s Time to Ditch Washington’s Harmful Property Tax Restriction

Posted by Andy Nicholas at Sep 01, 2017 12:55 PM |

All of Washington’s kids deserve great schools, but the hard truth is that too many of them will remain saddled with under-resourced K-12 schools as long as a damaging law that arbitrarily suppresses state property tax collections remains on the books. This law starves Washington’s schools of adequate funding – and children of color have been disproportionately harmed by the chronic lack of investment in schools that it has created.  

That’s why our organization, in partnership with the Equity in Education Coalition and three state legislators, has submitted an amicus brief to the Washington State Supreme Court focused on this damaging law. Our brief demonstrates to the court – as the justices are in the process of ruling whether the legislature has fulfilled its duty to amply fund schools under the McCleary case – that this law should be struck down as an unconstitutional barrier to funding the great schools our kids deserve. 

First enacted in 2001 with the passage of Tim Eyman’s Initiative 747 (and later reenacted by the legislature after I-747 was struck down by the state Supreme Court), the restriction significantly weakened the state property tax, which is a major source of funding for Washington schools. The restriction arbitrarily caps annual growth in state property tax revenues to 1 percent (or the rate of inflation, whichever is lower) plus the value of new construction. Given that the annual costs to recruit and keep excellent teachers, purchase up-to-date computers and other classroom technologies, and buy other important resources grow faster than the law allows state property tax revenues to grow, the restriction has effectively drained billions of dollars in resources from our local schools over most of the last two decades. It will continue to do so if it’s not significantly reformed or taken off the books.

As shown in Figure 1 from the brief, from 1992 to 2000, the period of economic expansion immediately before the restriction was enacted, the state property tax was a robust and stable source of funding for our schools, growing at nearly the same average annual rate as property values. But our property tax revenue foundation grew much weaker after the restriction was enacted in late 2001. While property values grew at an average annual rate of 10 percent between 2002 and 2009, state property tax revenues grew by only 3.4 percent per year on average during this period.

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Harmful_Prop_Tax_Restriction_1

The property tax restriction took an especially large toll on school funding in the wake of the Great Recession. Although the Recession nominally ended in early 2009, its lingering effects caused property values to decline for several years afterward, bottoming out in 2013.

The construction boom that followed led to a rapid turnaround, with property values growing by 7 percent per year on average between 2013 and 2016. But again, the restriction did exactly what it was designed to do: it held property tax revenue to an average growth rate of only 2.1 percent during this period, preventing our schools from reaping any meaningful benefit from the booming recovery. 

The gap between state property tax collections and school funding has steadily ballooned under the restriction (see Figure 2). As part of their McCleary “fix,” lawmakers this year temporarily suspended the restriction to raise new state property tax resources for schools. However, it is slated to go back into effect in 2022. If this happens, the restriction will quickly erase most of the school funding progress achieved this year. In fact, the gap will rise to $27 billion in the 2025-27 cycle from the current shortfall of $16 billion.

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Harmful_Prop_Tax_Restriction_2

The property tax restriction has taken an especially heavy toll on kids of color throughout Washington. As our brief states, 

“The opportunity gap widened at an alarming rate following the imposition of the 1 percent revenue cap in 2002.  For example, between 2003 and 2015, Education Week Research Center found that while reading and math proficiency of Washington fourth and eighth graders improved overall, the gap between low-income students and their wealthier counterparts increased more than any other state in America.”  

While much more will need to be done to close the opportunity gap, eliminating the property tax restriction would free up resources needed to bolster opportunities for kids of color and kids from families with lower incomes in every corner of our state.

It’s important to note that while eliminating the restriction would allow property taxes to increase, lawmakers can take actions to ensure that lower- and middle-income households don’t wind up saddled with unaffordably high property tax bills. (Information about our safeguard rebate proposal and other equitable reforms to our property tax code, for example, is available here and here.)

The bottom line is the property tax restriction makes it even harder to sustainably fund Washington’s kids’ classrooms, which is particularly detrimental to children of color. All kids should have access to great schools with up-to-date textbooks, learning resources, and facilities – so that they can have the opportunity to thrive. That’s why we urge the Supreme Court to strike down this damaging restriction.

See the entire amicus brief that we submitted in partnership with the Equity in Education Coalition, Sen. Jamie Pedersen, Rep. Laurie Jinkins, and Rep. Gerry Pollet here.

And read the Seattle Times article about all of the amicus briefs submitted to the Supreme Court for the McCleary case here.

 
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