Washington State Revenue Declines by another $1.4 billion
The Washington State Revenue Council just released their revised revenue forecast admitting for the first time that State revenue will only be $30.3 billion – a $1.4 billion decline from their prior forecast in June of $31.7 billion.
Governor Chris Gregoire said she expects the Legislature will have to go into special session toward the end of the year to adjust the budget. She wants to wait until after the next forecast in November, in case things get worse. Given that the state needs to keep a healthy reserve fund, Gregoire said she looks at the current budget hole as closer to $2 billion.
This is the fifth quarterly decline in predicted State revenue. The June 2010 report predicted that revenue would be $34 billion for this biennium. So the current prediction of $30.3 billion represents an over-estimation nearly $4 billion:
Note that a nearly identical problem happened during the last biennium when the Revenue Council predicted $34 billion, but we wound up with only $28 billion in actual revenue:
This result of $28 billion in revenue was with the economy being artificially propped up with hundreds of billions of dollars in federal stimulus funds – which temporarily increased State revenue by more than one billion dollars. So how can our State get $30.3 billion in revenue when the federal stimulus funds are no longer propping up our economy???
For more than a year, I have issued reports critical of the Revenue Council’s irrational optimism and explained why revenue for the coming biennium will not exceed $29 billion… and perhaps not even $28 billion. I have repeatedly called the Washington State budget a ticking time bomb and a “House of Cards.” That is still the case. For more on the problems of our State budget, and the financial disaster we are heading for, see my website: realwashingtonstatebudget.info.
In this report, I will once again explain why the Revenue Council’s September report remains extremely inaccurate and why another one to two billion dollars in State budget cuts are to be expected in the coming months unless steps are taken to rein in the billions of dollars in corporate welfare our legislature is currently handing out.
False Assumptions of the Revenue Council… Rapid Job Growth?
Despite recent disastrous economic news coming in from around our nation and around our world (such as ZERO US job growth in August and the pending financial collapse of Europe), the Revenue Council continues to keep their heads buried in the sand by predicting that State Revenue will grow by $2 billion during the next two years.
This imaginary revenue growth is based on their false assumption that employment to grow by 1.1 percent this year, 1.4 percent in 2012 and 2.1 percent in 2013. In reality, employment now is nearly the same as it was two years ago – with no growth at all. And there is no sign of employment getting any better during the next two years.
The following graph by the revenue council makes it look like we are only 141,000 jobs below a normal recovery – and that we have gained 50,000 jobs in the past 2 years. But the graph ignores the fact that our population as grown. In fact, our State’s workforce population has grown by nearly 200,000 in the past two years – while jobs have only grown by 50,000. So the true jobs deficit is 141,000 PLUS 150,000. equals nearly 300,000 jobs which would be required just to get back to normal. Put another way, the jobs crisis is growing WORSE every month – not getting even close to better and not even staying the same!
We are currently at 2.815 million jobs in Washington State. This is exactly where we were two years ago in 2009. The Revenue Council claims that there will be 100,000 new jobs created in our State in the next two years – increasing the total to 2.915 million jobs – which will still be about 100,000 jobs less than we had in 2008 – and 300,000 fewer jobs than we would have if this were a “normal” recession. .
The above graph assumes that we are going through a normal recession and that there will be normal job growth in coming months. But in fact, this is not a normal Recession. The real cause of the Recession is a structural problem with the economy. Too much wealth is going to the richest one percent – while the middle class is being driven to bankruptcy. I said three years ago that there will be no recovery until this structural problem is addressed. Sadly, not a single Revenue Council report during the past three years has mentioned a single word about the extreme concentration of wealth that is destroying our economy. Perhaps this is because the Revenue Council is dominated by the same multi-millionaires who crashed our economy in the first place. We will not have an accurate revenue report until we replace the multimillionaires on the revenue council with folks more willing to discuss and address the real problems facing middle class families.
Rapid Growth in Income???
Even more shocking is the Revenue Council assumption that income will grow by nearly 15% during the next biennium. With tens of thousands of public workers scheduled to lose their jobs due to past and coming State budget cuts, it is more likely that income will decline by 15%!
Note that the rapid rise in State revenue assumes that the average annual wage will increase by $4,000 per year during the next two years. This may be true for the millionaires who are running the Revenue Council. But for the rest of us, we are more likely to see pay cuts than pay increases. The only group seeing a pay increase are the millionaires. Unfortunately, because they do not spend much of their money on taxable goods, their pay increases will not result in an increase in State revenue.
The rapid transfer of wealth and income from the middle class to the super rich is the primary reason why State revenue has fallen from 6% of income to 5% of income during the past two years. It is because the income has shifted away from the middle class, who spend nearly all of their income on taxable items – and to the super rich, who spend much less of their income on taxable items and have a boat load of accountants who help them evade paying State taxes.
Because the middle class have much less money, sales and sales tax revenue fell dramatically in 2009 and 2010. Until the middle class have jobs and income, there is no chance of an increase in State revenue.
The Revenue Council does admit that revenue might decline by another $2 billion towards the end of their report.
The $2 billion in cuts that will result from the September Revenue forecast will likely lead to the loss of another 20,000 public and private sector jobs. These job losses will result in still lower sales and lower State revenue – which will result in another $2 billion in budget cuts during the coming year – which will result in the loss of another 20,000 public and private sector jobs.
This is Hoover Economics at its worst. It is a downward economic death spiral. Our only hope of reversing this disaster is to end the insane budget cuts and require that wealthy corporations pay their fair share of State taxes.
Will Requiring Wealthy Corporations to pay their fair share of State taxes harm our Economy?
Members of the Revenue Council have claimed that requiring corporations to pay taxes would harm our economy. For example, this quote was distributed by the corporate media:
Rep. Ed Orcutt, R-Kalama, chairman of the Economic and Revenue Forecast Council stated:
“How do you get revenue out of employers who are struggling to put people back to work?”
What the corporate media failed to point out is that tax breaks for wealthy corporations have skyrocketed from $20 billion per year in 2000 to $50 billion per year in 2010.
10 Year of Out of Control Corporate Tax Breaks
State Revenue compared to Tax Exemptions (to nearest Billion)
Washington State OFM, 10 Year Financial Trends, Schedule 5: Near General Fund. Annual Tax Breaks extrapolated from DOR Tax Exemption Reports. See also http://leap.leg.wa.gov/leap/Oversight/histongf.pdf
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. None of these billions in tax breaks resulted in any jobs. Instead corporations used these windfall profits to outsource jobs out of Washington State.
Representative Orcutt also must not be aware that State business taxes are deductible from federal business taxes. It therefore would not harm wealthy corporations to pay their fair share of State taxes.
Finally, as a direct answer to Representative Orcutt, let’s use Washington State’s most wealthy corporation as an example of their ability to pay their fair share of State taxes.
This past year, Microsoft recorded a record profit of $20 billion dollars on record sales of $60 billion dollars. Had they paid a normal 1.5% Gross Receipts Business Tax like any other business in our State, they would have paid about $1 billion in State taxes. This entire amount could have been deducted from their federal taxes – meaning they still would have recorded nearly $20 billion in profits – the greatest profit in the history of our planet.
However, because Microsoft millionaires dominate Olympia, Microsoft was not required to pay their fair share of State taxes. According to Representative Orcutt, Microsoft should not be required to pay taxes because they are “struggling to put people back to work.”
In fact, of Microsoft’s 60,000 employees, less than 1,000 are actually from the State of Washington. So we are giving them $1 million in tax breaks for every person they hire from our State. If this is not insanity, I do not know what is.
Microsoft is not alone in experiencing record profits. With second-quarter earnings largely in the books (99% of S&P 500 companies have reported for Q2 2011), today’s chart provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings. http://www.chartoftheday.com/20110916.htm?A
Since its Q1 2009 low, S&P 500 earnings have surged (up over 1000%) and currently come in at a level that is greater than what occurred at the peak of the dot-com bubble and very near what occurred at the peak of the credit bubble. It is interesting to note that the original run up in real earnings from Great Depression lows to credit bubble highs took over 78 years. The current spike has taken 26 months.
Given that these wealthy corporations are making record profits by getting billions in tax payer bailouts and shipping our jobs overseas, isn’t it time that they at least start paying their fair share of State and federal taxes?
For more information on the illegality of corporate tax breaks, visit my website: realwashingtonstatebudget.info.
The next Revenue Council report is scheduled for November. I will once again publish an analysis of that report a day or so after it is released. But until the insane corporate welfare is stopped, we should expect more bad news. Feel free to email me back with your questions and comments.
Regards, David Spring M. Ed.