Questions and Answers on the Resolution to cut corporate tax breaks –
Instead of cutting school funding
Why do we need to pass this resolution now rather than later?
The extreme nature of the budget shortfall for the next biennium only became confirmed on March 17th when the budget shortfall rose to over $5 billion. Also on April 4th, the House proposed budget was released confirming their intention to delay the June payment to schools – the first time in State history that the legislature would fail to make a Basic Education payment to our schools.
Isn’t this just an accounting trick which delays the June payment of $420 million to school districts by one day – from the last day in June to the first of July?
It has been claimed that the payment is merely being delayed by one day. This is a false claim because the budget shortfall for the next biennium will be much worse than the budget shortfall for the current biennium. It will be much worse for three reasons. First, there will be $3 billion less in federal stimulus funding. Second, there will be $1 billion less that can be raid from other State funds. Third, the budget for the next biennium is based on the assumption that revenue will grow by 13% in the next two years. When this fails to happen, there will be even more cuts – causing another 5,000 to 10,000 teachers to lose their jobs in the next two years.
Don’t most school districts have enough money in their reserve accounts to absorb this $420 million cut without firing teachers? Most school districts have less than 30 days in their Reserve Accounts. School districts have already absorbed more than $2 billion in cuts in the past two years. There is literally nothing left to cut but teachers. Rather than using up their essential and meager reserves many school districts will simply fire teachers. So a $420 million cut to the June payment will result in 5,000 teachers losing their jobs this summer.
Why should the entire $500 million in savings from suspending these tax exemptions go to public schools when so many other State programs have endured major cuts?
First, because school funding is being targeted to cover the entire amount of the remaining budget shortfall. Second, because the money for tax exemptions for wealthy corporations was originally taken from school funding. For example, in 2003, the week before the legislature passed the Boeing $300 million tax exemption, they passed a bill cutting $300 million from school funding. Therefore what is needed now is restoring the funding taken away in 2003.
Isn’t this Resolution contrary to the Eyman Initiative? No,the Eyman Initiative is not even constitutional. In any event, it is up to the courts and not the legislature to answer this question.
Would eliminating tax breaks for wealthy corporations harm them financially or cost jobs? No. Wealthy corporations could deduct their State taxes from their federal taxes so no wealthy corporation would be harmed financially.
If wealthy corporations own Olympia, isn’t this resolution merely beating a dead horse?
Never before has there been a clear choice between funding schools or granting corporate tax breaks. This is the first time in the history of our State that either party has proposed suspending a Basic Education Monthly payment to our school districts. Passing this resolution at this precise time will make this choice more visible to the public and to legislators – and hopefully save the jobs of thousands of teachers and protect the future of one million school children. .
$5 Billion Shortfall based on rapid rise in State Revenue during the next two years
The Revenue Council is now calling for 6.7% growth in FY 2011 and 6.7% growth in FY 2012. This would be a two year growth rate of 13.4% over the next 2 years.
The actual rate of growth is currently less than 2%. So a 6.7% rate of growth is utterly ridiculous. The reason there will not be a recovery is because no one has a job. Therefore no one has any money to spend. Ironically coming State budget cuts are likely to lead to even further drops in State revenue as thousands of teachers and other State workers lose their jobs. .If there are no jobs, the budget shortfall will rise to $8 billion.
10 Year of Out of Control Corporate Tax Breaks
State Revenue compared to Tax Exemptions (to nearest Billion)
Tax breaks for major corporations in our State have skyrocketed 250% during the past 10 years (from $22 billion per year in 2000 to $50 billion by 2010): Over 90% of these tax exemptions benefit the richest one percent, with much of this wealth being shipped out of State and even out of the country, creating jobs overseas instead of here in Washington State.
In shifting the tax burden to our middle class, and causing the firing of thousands of public servants, these massive tax exemptions for billionaires do not create jobs. Instead, they cost jobs.
We now spend $8 on corporate tax breaks for every dollar we spend on teachers. If we cut back on corporate tax breaks for the rich by even 10%, we could hire thousands of teachers and doctors and health care workers instead of firing them.
Negative economic impact of billions of dollars in cuts to State programs – will force the firing of thousands of public workers – soon to be followed by the firing of thousands of private sector workers whose jobs depend on the spending of public sector workers. There has been $1 billion in State budget cuts in just the past 6 months. This does not include the ending of federal stimulus funding in June – and the failure of the State to pay schools in June – a double whammy which will lead to thousands of teachers being fired. Billions in cuts (Hoover Economics) will only make things worse.. Unemployed workers cannot shop at stores or pay taxes. Therefore State revenues will continue to decline setting off a downward economic spiral much like what happened in 1930 to 1932.
Billions of dollars in lost income due to unemployment will also prevent recovery.
State revenue will not recover until the unemployment problem in our State is resolved. However, just as the Revenue Council has been wrong in predicting a rapid recovery to State revenue, they have also been wrong in repeatedly predicting a rapid rise in employment.
Washington State Employment Will Decline if All Cuts Budget passes this year
In November, 2009, employment was just above 2.8 million. The Revenue Forecast Council predicted employment would rise rapidly to 2.85 million by 2011. In response to their claim, I issued a report predicting that employment would remain at or below 2.8 million through 2010. We currently have about 2.78 million jobs.
Many State budget cuts and job losses will go into effect this summer as 10,000 teachers, 10,000 college instructors and 20,000 health care workers are fired. These mass firings will be followed by tens of thousands of downstream private sector employees losing their jobs. By the end of 2012, the number of employed workers will fall below 2.7 million. Total job losses will exceed 100,000.
The number of unemployed workers has doubled in the past three years. Many have been unemployed for years, have ran out of benefits and ran out of hope. Unemployed workers can not pay State taxes.
Even the statistical rise in jobs in January was actually a decline in jobs
The rise of 10,600 jobs in January 2011 was only a statistical manipulation due to seasonal adjustment. There was actually a loss of 47,100 jobs after Christmas. But since they were expecting a loss of 57,700 jobs after Christmas, the media reported an increase of 10,600 jobs.
"In a very real sense, we lost jobs. But we lost fewer jobs than we normally would at this time of year." – Dave Wallace, Chief Economist for Employment Security, February 2011.
But the real reason only 40,000 lost their jobs after Christmas was because fewer people had jobs before Christmas. There were only 12,000 private sector created in Washington State in all of 2010. According to the Washington State Employment Security Department, since there are nearly 800,000 unemployed workers in Washington State, there were 66 unemployed workers for every new job created. Clearly what will be urgently needed is a massive public workers program.
A Positive Solution to the State Budget Crisis:
Cut Corporate Tax Breaks instead of Cutting School Funding
The US Commerce Department reported that corporate profits hit a record $5 trillion in 2010. Corporations are now sitting on trillions of dollars in liquid assets – which they are investing mainly to creating jobs overseas.
The Fed recently reported that bank reserves had risen from $2 billion in August 2008 to nearly one trillion dollars in August 2010. The four largest banks (Bank of America, JP Morgan Chase, Wells Fargo, and Citigroup) received hundreds of billions in subsidies from the US tax payers.
Meanwhile millions of Americans remain unemployed and through no fault of their own have lost their homes, their health insurance and their life savings – while banks now rack in record profits from record foreclosures.
Millions of Americans could remain in their homes, if unemployed workers were given a chance to earn a pay check. The government should represent and protect not merely the greed of banks and wealthy corporations to maximize profits, but also the needs of people to stay in their homes and have real jobs. We should protect not merely banks from failure, but also homeowners and middle class working families.
Rolling back corporate tax breaks would provide enough revenue to protect the jobs of thousands of teachers AND have enough left over to put Washington’s hard working families back to work.
And by the way, this is what our Courts have said about the Paramount Duty to Fund Schools – even in times of economic crisis:
“Once the legislature has established what it deem to be 100% funding for basic education, that level may not be reduce (notwithstanding an economic crisis) unless the amount appropriate was in fact in excess of 100% funding. Once a program is defined as “basic education,” it becomes part of a state on-going entitlement program. The State may not reduce the funding level due to state revenue problems.” Doran Two Decision
For more information on the scale of corporate tax breaks and to sign a Petition in favor of the Resolution to require corporations to pay their fair share of State taxes, visit our website: realwashingtonstatebudget.info or email me.
If we all work together, we can protect the future of our one million school children. I look forward to hearing from you.
Regards, David Spring M.Ed.