In Fiscal Year (FY) 2016, Washington collected $36.3 billion in state and local taxes—or $4,989 for every man, woman, and child. 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?
To better answer this question, this analysis will calculate Washington’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.
Fortunately for taxpayers, as shown in Chart 1, Washington’s state and local tax burden (tax collections divided by private sector personal income) was the fourteenth lowest in the nation for FY 2016 at 13 percent—or -9 percent below the national average of 14.3 percent.
#Washington state and local #taxburden in FY 2016 was the 14th lowest in the nation at 13%— -9% below the US average of 14.3% http://bit.ly/2FX9C8F @keypolicydata #WApol #WAleg #WAgov #PolicyData (click to tweet)
As shown in Chart 2, Washington’s tax burden has increased over time by 37 percent to 13 percent in FY 2016 from 9.5 percent in FY 1950.
To put Washington’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, Washington’s 13 percent tax burden is greater than these combined industries: manufacturing (10.1 percent), educational services (0.9 percent), and utilities (0.2 percent).
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 -17 percent lower (3.7 percent vs. 4.5 percent). However, the sales tax is the 3rd highest in the country and 80 percent higher than the national average (6 percent vs. 3.4 percent) which offsets lower taxes elsewhere.
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 as of July 1, 2017 is a whopping 9.2 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 local government tax burden for the 39 Washington counties are shown below (from highest to lowest):
Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?
Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.