OLYMPIA — Washington is among the states that depend most heavily on sales taxes for revenue, and a new report links a decline in growth of such funds to the rising concentration of wealth for the richest U.S. households.
The study by credit ratings agency Standard &Poor’s shows a significant decline in annual average state tax growth among the 10 most sales tax-dependent states, which includes Washington.
That report ties the slowed growth to rising income inequality, which appears to stunt overall economic growth. S&P also links it to a slowdown in average yearly gains in state tax revenues.
Most economic activity comes from consumer spending, a key driver of growth. But consumers have become increasingly reluctant to spend as median incomes have barely increased over three decades and remain lower than they were in 2007 when the Great Recession began. Median household incomes, adjusted for inflation, were $54,045 in July, about 4.6 percent lower than in late 2007.
By contrast, the top 1 percent of earners have prospered for more than 30 years. Adjusted for inflation, their average incomes have nearly tripled to $1.26 million since 1979, according to the IRS.
But S&P notes that the affluent tend to save a greater share of their income and spend it on untaxed services, meaning that states are unlikely to see much of an increase in sales tax collections based on the gains among this group.
The state sales tax rate in Washington is 6.5 percent. Local municipalities add on their own sales taxes, so depending on where purchases occur, the rate paid ranges from 7 percent to 9.6 percent. These taxes don’t include so-called sin taxes like those imposed on cigarettes, alcohol and, now, marijuana.
State sales tax revenue makes up more than 45 percent of the overall state budget, Washington data shows.
The S&P report notes that while Washington saw average annual tax revenue growth of more than 9 percent from 1950-1979, it dropped to just under 3 percent per year from 2000 to 2009. Since then, it’s seen a slight increase up to 3.3 percent a year, according to the report.
State lawmakers are facing a projected budget deficit for the next spending period of nearly $1 billion. To satisfy a state Supreme Court decision to allocate more money for education, that shortfall could be up to $3 billion for the 2015-17 biennium.
Lower-income brackets pay more of their income on sales tax, state numbers show. Those making $17,000 a year or less pay 11.5 percent of their income in sales taxes, while those who make more than $175,000 a year spend just 2 percent of their income on sales tax, according to data from the state Department of Revenue.
A 2012 report by the state Office of Financial Management found that the top 5 percent of the richest households had more than half of the total wealth in the state. And the top 1 percent earners in the state captured 19 percent of the wealth.
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