Washington’s revenue and personal income growth indicate that this recession is much different from the Great Recession

By: Emily Makings
12:48 pm
March 5, 2021

Some proponents of new taxes this year are arguing that Washington needs to have new revenue sources in place for when the federal relief funds run out. These arguments ignore the fact that this recession now appears to be quite different from the Great Recession:

  • In the Great Recession, state revenues actually declined by 5.5% from 2007–09 to 2009–11. Today, state revenues are expected to increase by 10.7% in 2019–21, 7.2% in 2021–23, and 6.1% in 2023–25.
  • In the Great Recession, state personal income declined by 4.3% in 2009. According to the preliminary March economic forecast from the Economic and Revenue Forecast Council, state personal income is expected to increase by 6.4% in 2020, by 3.9% in 2021, and by 0.1% in 2022. Then, from 2023 through 2025, personal income growth is expected to average 5.0% annually.

Nevertheless, the Washington Budget & Policy Center argues that Washington needs to enact a capital gains tax to “help Washington state avoid the mistakes of the last recession by providing a permanent replacement for time-limited federal recovery funds.” But the purpose of federal aid is to help states maintain spending through recessions, not to permanently step states up to higher levels of spending (and taxation).

Similarly, Washington State Wire reports on a briefing this week with Rep. Frame and Rep. Senn:

The legislators also underscored that since the federal dollars are not ongoing payments, the economic needs of the state will not be erased without a more sustainable revenue source “When that federal money stops, the needs are still going to be there. And some of the deepest cuts in the recession ten years ago came long after the initial recession. We cannot just sit here and not take action,” said Frame.

It’s true that stimulus funds during the Great Recession propped up state spending in 2007–09 and 2009–11, and that when federal funding was used up, the Legislature reduced spending in 2011–13. It is not obvious that that will happen now. Thanks to improving revenue forecasts, actions taken by the governor last year, and the federal funding received so far, Washington does not have a budget shortfall. Any additional federal funding can be spent on new costs related to the pandemic and recession—it is not needed to address ongoing budget shortfalls. (Of course, the budget situation could change for the worse, but the best way to plan for budget uncertainty is to enact sustainable budgets within current budget constraints.)

Washington’s current revenue structure has performed very well since the Great Recession (and through the current recession):

Categories: Budget , Tax Policy.