Along with spending cuts, state still needs tax reform

Gov. Gregoire should appoint a bipartisan group to look at financial and tax issues, but if she doesn't, there's nothing to stop others from acting. As the election showed, people don't have to wait for the leaders.

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Gov. Chris Gregoire.

Gov. Gregoire should appoint a bipartisan group to look at financial and tax issues, but if she doesn't, there's nothing to stop others from acting. As the election showed, people don't have to wait for the leaders.

For the first time in a long while, big new public spending ideas are yielding center stage to root-canal proposals to reduce even current spending levels. In local terms, think of Tim Eyman as up, Sound Transit light rail as down.

Short-term, at the federal, state, and local levels, executive and legislative branches are struggling to arrive by year end at public budgets that will make necessary cuts while at the same time not choking off badly needed economic growth.   (At the national level, we see both Democrats and Republicans perplexed over whether to extend Bush-era tax cuts when they expire Dec. 31 and, at the same time, trying to enact a long-delayed federal budget to replace a current, stopgap "continuing resolution" allowing government to operate while finessing tough decisions).  But these immediate tasks, however difficult, are minor compared to the longer-term necessity of bringing public revenues and spending into balance.

Two things are driving the long-term effort forward.

First, Tea Party and independent voters, in particular, sent a clear message Nov. 2 to elected officials of both major political parties: Stop unnecessary spending, cut short-term deficits, reduce long-term debt.

Second, the numbers are daunting and will drive the electeds toward actions and decisions they would not have considered as recently as two years ago. Federal deficits of $1 trillion annually are projected for each of the next ten years. Public debt, on its current path, is unsustainable. It has gotten to the point that our major European and Asian partners are deriding us for preaching reform to them while pursuing irresponsible policies in the United States.

Last week, the co-chairs of a national deficit-reduction commission (known formally as The National Commission on Fiscal Responsibility and Reform), Democrat Erskine Bowles and Republican former Sen. Alan Simpson, seized the post-election day by issuing a so-called "co-chairs proposal" that identifies about $1 trillion in new revenue sources, $2.2 trillion in spending reductions, and $700 billion in interest savings over 10 years. Their proposal, if adopted, would cut the federal deficit to 2.2 percent of Gross Domestic Product (GDP) by 2015, bring debt down to 60 percent of GDP by 2024, and balance the federal budget by 2037, saving nearly $4 trillion in the current decade.

The proposal would entail some serious changes.  It would make big cuts in discretionary, health-care, and Pentagon spending. It would restore Social Security to solvency. And its tax proposals would lower rates, limit brackets, and eliminate "tax expenditures" (loopholes and subsidies), which favor some economic sectors at the expense of others.  Even the home-mortgage tax deduction would be revised, capping deductions for those owning more expensive homes.

Will the co-chairs' proposal be enacted? No. The bipartisan commission itself must reach a weighted decision on its proposals and its final product is not due until Dec. 1. The co-chairs' ideas will be watered down severely in a final report. Moreover, no one expects President Barack Obama or 2011 congressional leaders to embrace immediately such dramatic and politically sensitive ideas.

However, the ideas are getting serious attention from elected officials and media, which earlier would have dismissed them as just another set of impractical goo-goo notions in a long series of similar deficit-reduction proposals.

This week another important set of proposals will be forthcoming from the Bipartisan Policy Center's debt-reduction task force, led by former Federal Reserve Governor Alice Rivlin and former Sen. Pete Domenici. It is expected to call for major cuts, in particular, in entitlement (Social Security, Medicare) and defense spending.

It is inescapable that, right now, a changed political climate exists, which would entertain and accept big taxing and spending changes.

If at least some of the reform proposals are not adopted by Obama and the upcoming Congress, you can be sure that voters in 2012, as in 2010, will call for new leaders who will do it.

There are political climate changes that, if recognized, lead to policy changes previously thought impossible. In the late 1950s and early 1960s, such a change led to enactment of historic civil-rights and Great Society legislation. A deficit- and debt-reduction weather front is now in sight, which could lead to similarly historic changes in the remainder of this and the next presidential term.

What are the implications hereabouts?

The Nov. 2 election results told us that voters do not want to raise taxes, expect discipline in public-sector spending and compensation levels, and do not want even progressive tax reform if they believe it would raise overall tax levels. Even in this true-blue state and locality, Republicans and moderate Democrats rode these issues to gain political strength they had lacked over the past decade.

State, King County, and Seattle budget exercises currently underway no doubt will pare spending so as to anger politically potent teachers and public-employee union leaders and groups dependent on public spending. But they will not re-examine, say, the huge allocations of money still headed toward Sound Transit, the Mercer Project, or unneeded downtown Seattle streetcar-line construction.

At the state level, little if any change will be made in tax expenditures, extended to Boeing, Microsoft, and a myriad of politically favored enterprises and companies, which now amount to three times the size of the state's biennial budget. The liberal Washington State Budget and Policy Center, however, issued last week a call for a comprehensive review of and reduction in such expenditures, which have been expanded under Gov. Chris Gregoire and the current Democratic Legislature.

Gregoire would do well to follow the example of Obama in appointing a state-level deficit reduction commission, possibly jointly sponsored by the Legislature, to examine all aspects of current taxing and spending policy. Even if a deficit-reduction commission is not appointed, the time is ripe for appointment of a new commission examining only tax policy. The so-called Gates Commission, early in this decade, made tax-policy proposals that were promptly dumped and disregarded in Olympia. Bill Gates Sr., chair of that commission, was sponsor of the recently defeated ballot measure to impose income taxes on higher-income taxpayers.

Several governors, and various private citizens, over the years have proposed wholesale Washington state tax reform, wanting in particular to replace our heavy and regressive sales taxes with progressive corporate and personal income taxes. But such efforts, after failing, have never been followed up with sustained, broadly based efforts to educate the public and politicians about the benefits to all of a big overhaul. At the federal level, the enactment of the Civil Rights Act, the Voting Rights Act, Medicare and Medicaid, federal aid to education, international-trade, labor-reform, and other landmark legislation has always been preceded by such efforts.

If Gregoire and the Legislature do not want to begin such a process, a bipartisan group of business, academic, labor, consumer, elected, and other leaders could launch such an effort on their own. They need not wait for official blessing.

Efforts toward change need not be top-down. They also can be bottom-up. Such efforts were felt dramatically Nov. 2 and will continue until and unless those nominally in charge get the message and jump to the front of the parade.


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About the Authors & Contributors

Ted Van Dyk

Ted Van Dyk

Ted Van Dyk has been active in national policy and politics since 1961, serving in the White House and State Department and as policy director of several Democratic presidential campaigns. He is author of Heroes, Hacks and Fools and numerous essays in national publications. You can reach him in care of