More on Washington's High Business Taxes

The Washington Alliance for a Competitive Economy - a partnership among AWB, the Washington Research Council and the Washington Roundtable - takes a closer look at the recent COST study of business taxes. (Don Brunell noted the COST study here.) In a report released today, WashACE finds that taxes on business have increased since 2002.

... the effective tax rate on Washington businesses was 5.8 percent in FY 2007, up from 5.6 percent in FY 2002. Over this 5-year span, however, the average effective state and local tax rate across the country grew from 4.5 to 5.0 percent. As a result, Washington’s ranking
actually improved from 11th highest in FY 2002 to 14th highest FY 2007.

The business share of all state and local taxes remains high here.

businesses paid 51.0 percent of Washington’s total state and local taxes and ranked 13th highest among the states for business’s tax share. The nationwide average business state and local tax share was 44.1 percent....In FY 2002 Washington’s business tax share was 53.2 percent, which ranked 9th highest; the nationwide average was 43.4 percent that year.

The volatility of the corporate income tax explains some of what's happening nationally.

The greater business tax revenue growth in other states vis-à-vis Washington is largely the result of income taxes. Nationally, state and local revenue from the economically sensitive income taxes on business income nearly doubled from FY 2002 to FY 2007, as the economy moved from the trough of the business cycle to the peak. Washington, of course, has neither a corporate nor a personal income tax. Nationally, business taxes other than income taxes increased 37.5 percent over the five-year period, nearly the same increase Washington experienced in business taxes overall.

As the WashACE report notes, we've not changed tax policy to become more competitive. The change in our ranking largely reflect the business cycle.

As the economy cools, corporate income tax receipts are now falling in a number of states. ...When COST calculates business tax burdens for FY 2008, Washington is likely to move back up in the rankings.