Proving yet again that you can’t tax your way to economic prosperity, Washington state’s 25-27 budget is now negative by $421 million. According to the state’s September Revenue Forecast, projected revenues have been reduced by more than $400 million, resulting in a budget deficit. This news follows lawmakers enacting the largest tax increase in state history earlier this year (by more than $9 billion). One of the major components of that tax increase (sales tax on digital ads) is currently being challenged by Comcast for violating the federal Internet Tax Freedom Act.
Despite the state’s budget now showing a negative balance sheet, it doesn’t sound like Gov. Bob Ferguson plans to take any immediate action.
K.D. Chapman-See, director of the Office of Financial Management, said, “We’ve been preparing for the possibility of slowing revenue growth, and today’s forecast will inform our work as we help develop Gov. Ferguson’s supplemental budget proposal.”
This wait-and-see budget response is in contrast to the immediate action taken by Gov. Brad Little to reduce spending after a softening of sales tax collections in Idaho.
In August, Little ordered budget holdbacks of three percent while not reducing any K-12 spending. Little said about his decisive budget action: “Idaho’s economy is the strongest in the nation, and we continue to move in the right direction. It’s in our DNA here in Idaho to balance the budget, cut taxes, and right-size government so we can continue to make public schools our top priority.”
Here is the summary of today’s revenue forecast in Washington:
“U.S. & WA economies are slowing, and uncertainty is elevated due to recent/future policy changesImpacts of tariffs, federal employment/funding, geopolitical conflict and lower spending & higher inflation/interest rates, pose risks to the forecastThe revenue forecast is reduced due to lower forecasted retail sales, and reduced real estate excise tax and other agency revenuesTotal state revenues are expected to grow 10.8% between the 2023-25 and 2025-27 biennia and 7.0% between the 2025-27 and 2027-29 biennia”
It is noteworthy that despite the reduction, revenues are still projected to grow overall in Washington, yet there is still a $421 million deficit forecasted. As already occurred in Idaho, the Evergreen State needs to right-size its budget by reducing spending.
Jason Mercier is Vice President and Director of Research of Mountain States Policy Center, an independent research organization based in Idaho, Montana, Eastern Washington and Wyoming. Online at mountainstatespolicy.org.
