In Fiscal Year (FY) 2013, Washington collected $30.8 billion in state and local taxes. While this is an impressive sum of money, it tells us little about whether or not the average Washington taxpayer can afford this level of taxation.
As shown in Chart 1 below, Washington’s state and local tax burden (tax collections divided by personal income) was the sixteenth lowest in the nation for FY 2013 at 9.4percent— this is -9 percent below the national average of 10.3 percent. As shown in Chart 2, Washington’s tax burden has increased over time by 30 percent to 9.4 percent in FY 2013 from 7.2 percent in FY 1950.
Washington’s low state and local tax burden is driven by the fact that it does not have a state individual income tax or state corporate income tax. Additionally, relative to the national average, the property tax burden is 10 percent lower (2.9 percent vs. 3.2 percent). However, the sales tax is the second highest in the country which offsets lower taxes elsewhere (4.1 percent vs. 2.3 percent).
The sales tax burden is a concern even beyond its high burden. According to the Tax Foundation, Washington’s combined state and local sales tax rate in 2015 is a whopping 8.89 percent—the 4th highest in the country.
Additionally, Washington’s sales tax is actually a gross receipts tax meaning that it is levied on very broad-based number of goods and services and leads to tax pyramiding. Tax pyramiding creates all kinds of very bad economic distortions (pdf) by imposing higher effective tax burdens on some industries, but not others—especially industries that are near the end of the value-added chain.
Washington does need to ditch the gross receipts tax, but at the same time adopting an income tax is not the answer either. The solution is to adopt a Business Flat Tax like the one I’ve proposed for New Hampshire.
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Washington—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
The Washington counties with the highest local government tax burden include: Garfield County, WA (4.3 percent), Grays Harbor County, WA (4.3 percent), and Grant County, WA (4.3 percent). The Washington counties with the lowest local government tax burden include: Skamania County, WA (2.1 percent), Ferry County, WA (2.3 percent), and Asotin County, WA (2.4 percent).
J. Scott Moody has over 18 years as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.