Tax collections are up and Washington’s wealthiest residents are fueling the surge, the state’s chief economist said Tuesday.
A new forecast projects state revenues will reach $66 billion for the two-year budget cycle beginning July 1, an increase of $327 million from what chief economist Steve Lerch predicted in March.
The same analysis shows revenues for the nearly completed fiscal cycle will be $341 million higher than his last forecast.
“It’s a pretty modest increase. It’s certainly good news,” said David Schumacher, director of the Office of Financial Management.
A major driver is collections of capital gains taxes that are “quite a bit stronger than anticipated,” Lerch told the Washington State Economic and Revenue Forecast Council.
The tax took effect Jan. 1, 2022, with the first-year payments due on or by April 18. Lawmakers and Gov. Jay Inslee figured it would pull in $248 million in the first year but Washington had hauled in $852 million as of June 1. More than 2,000 taxpayers filed for extensions so the final sum could change when they are processed by mid-October.
In his forecast, Lerch penciled in a majority of the dollars for the current budget and $306 million for the one starting next week.
“The early capital gains revenue projections are encouraging, but we’ll have to wait until fall when final returns are due to have more certainty about actual collections,” Schumacher said.
Lerch, in his presentation to the council, said the state’s economy is showing signs of slower growth than experienced the past couple years.
Retail sales are slightly higher the past three months than expected as consumers keep spending.
And their confidence, which had been slipping nationwide in recent months, rose in June, according to national figures released Tuesday by the U.S. Consumer Confidence Board.
Though more people found work and fewer filed for unemployment in Washington in May, Lerch said the job market appears to be tightening as businesses cope with elevated interest rates and above-average inflation.
Construction activity is stronger than envisioned in March but “real estate activity has really slowed down.” Real estate excise tax collections are roughly 50% below May 2022 levels, he said.
Rising prices, interest rates, banking turmoil, technology sector layoffs and the Ukraine-Russia conflict continue to loom as major threats to the state’s economy, he said.
Economists have been talking about the potential of a recession for a while but it’s not happened yet, he said.
“That’s great,” Lerch added.
Revenue forecasts, which are released quarterly, do not include money raised from the auction of carbon allowances under the state’s new cap-and-trade program. Thus far, two auctions have generated roughly $857 million.