The 2009-11 supplemental budget recently enacted by the state Legislature, which increases taxes by $800 million, does not deal a fatal blow to any particular industry. Instead, legislators this year decided on the “death by a thousand cuts” approach to raising taxes. Unfortunately, much of the tax increase falls directly on consumers and the business community, big and small.
Because Senate Democrats dropped their attachment to an across-the-board sales tax hike, dozens of smaller increases will be applied across the business spectrum. But the common theme is that consumers will pay more in the end. As the old axiom goes, businesses don’t pay taxes – people pay taxes.
Some of the taxes legislators raised will never appear as an item on a sales receipt, but consumers will end up paying anyway:
Service-oriented businesses, such as accountants, barbershops and real-estate agencies, which already pay the highest Business and Occupation (B&O) tax rate of 1.5 percent, will now be subject to a 1.8-percent rate – a 20-percent tax hike. Policymakers are seeking a quarter of a billion dollars in revenue from this increase over the next year. Expect to see higher prices for services as a result.
Those of you who like bottled water or candy now will have to pay sales and use taxes on these purchases. Policymakers expect to raise approximately $30 million dollars from bottled water and $30 million from candy.
Again, this is money out of the consumers’ pockets. That will reduce demand for both products, hurting local providers. There is a small tax credit for local confectioners that hire, but at $1,000 per new position, don’t expect the candyman to be all smiles.
The tax package also increases taxes on beer. Just in time for summer, consumers will have to shell out an extra 50 cents per gallon of beer. Most microbrews are exempt, but the most popular beers – by sales – will be subject to the increased tax. Expected revenue from Joe Sixpack? About $60 million.
Although there are a handful of other taxes, the last substantial one is a tax on out-of-state businesses, to the tune of $85 million. While it may sound good, and politically popular, to stick it to the out-of-town businesses, this action is worrisome because it gives the state Department of Revenue an expanded reach and provides yet another disincentive for businesses to dip their toes into our state economy.
And while the talk of the town will inevitably be the $800 million in tax increases, sure to be cost among the tax-package scrutinizing will be the relatively little done to actually help the small business community – something legislators on both side of the aisle, along with the media, called for during the early days of the legislative session.
Workers’ Comp reform? Nothing. A lauded bi-partisan reform bill failed to receive a hearing. The Labor and Commerce committees wouldn’t even agree to hear legislation calling for an assessment of options to reform our state’s monopoly system. As a result, expect an initiative on the ballot this fall to open up the state-run system to private competition.
Unemployment insurance? Rates for 2010 skyrocketed, and even though the average increase was 54 percent, stories from the business community tell of triple-digit percentage increases. Even more worrisome is that rates are expected to more than double 2010’s rates over the next two years. And again, the legislature failed to act on this important issue.
During the 2009 session, the business community breathed a sigh of relief as legislators wisely decided to forgo tax increases and instead used federal bailout money to fill the gaps. This year, however, legislators decided to spread the cost of their unfettered spending during the good times onto the backs of consumers and business owners, who now have to deal with higher taxes and fees but with little to show for it in return.
Carl Gipson is director for small business research at Washington Policy Center, a non-partisan independent policy research organization in Washington state. He can be reached at 206-937-9691 or online at washingtonpolicy.org.
