Last week, PubliCola reported on a proposal by a few freshman Democrats to institute a 1% income tax*, offset by lower B&O and sales taxes. Most notably for our purposes, it would also generate $1.6 billion by extending the sales tax to services. Overall, the State would come out about $500m ahead.
I’m no political pundit but I suspect this is DOA. Nevertheless, it’s important to note that a broader sales tax base would have huge implications for local governments, particularly transit agencies. A couple of years ago, I estimated the fiscal impact of taxing all services as $100m a year for Metro. For comparison, the temporary CRC that basically stabilized Metro’s situation generates $26-28m a year; Metro’s long term deficit is on the order of $60m. All of Metro’s expansion plans come back into play, and then some.
Community Transit’s entire funding gap would disappear, and then some; Sound Transit could suddenly afford Federal Way, the Bellevue tunnel, an Aloha extension, and just about everything else coded “if funding allows”; and Pierce Transit would recover from its recent collapse. And that’s to say nothing about renewed city transportation budgets.
This would be a game changer.
* 1% is the rate; it is NOT a tax on “the 1%”