Cato Institute: Inslee’s budget will scare away startups

After Governor Jay Inslee’s proposal of a $54 billion 2019-2021 budget, Christopher Edwards of the Cato Insititute — which last year ranked Inslee as the worst governor in the nation in terms of taxation and spending — called Inslee’s budget “profligate.”

The budget includes $1.1 billion for the recovery of the Puget Sound orca whales, as well as a statewide capital gains tax and a B&O tax increase.

Edwards told KIRO Radio’s Dori Monson that with each biennium, Inslee’s budget grows massively. The proposed budget is about 20 percent greater than the 2017-2019 budget.

RELATED: Dori | Inslee’s budget rips off small businesses, shows hypocrisy

“It’s jumping up 10 to 15 percent per year, which is extraordinary growth,” Edwards said.

Last week, Inslee made headlines when he seemed to suggest to The Atlantic that he was running for president in 2020. However, Edwards doesn’t see the governor’s large budget as a handicap in the national race due to the evolution of the Democratic Party.

“They probably will fly in the Democratic Party, which has moved far to the left on economic issues in recent years,” he said.

Also working in Inslee’s favor is the healthy state of Washington’s tech-filled economy.

“Inslee’s been lucky because he has had an economy that has grown pretty strongly,” Edwards said. “But I don’t think that’s because of what he’s done. It’s in spite of what his policies have been.”

For example, Edwards noted, Washingtonians have been quick to shoot down Inslee’s tax proposals, most recently his carbon tax, thereby keeping a financial environment in which big businesses want to invest.

However, if Inslee’s proposed capital gains tax comes into being, the state’s tech economy could soon start to look quite different, Edwards warned.

“The capital gains tax is an extremely important issue for high-tech growth, [for] young startup-type companies … you put a heavy capital gains on like Inslee wants to do, you’re going to scare away those companies to places like Texas where they don’t have those kinds of taxes,” Edwards said.

Dori said that a capital gains tax is a thinly-veiled income tax, which is forbidden in the state constitution.

Inslee’s budget appears to be disproportionately taking funds from business owners, Edwards observed, rather than spreading the burden fairly.

“In a democracy, the government ought to have an open, transparent tax system,” Edwards said. “If someone like Inslee wants a big government, he ought to raise the money through general taxes that create broad-based pain on everyone, not hidden taxes just collected from business.”

Capital gains keep money invested the economy, he explained, which is good for everyone. Furthermore, not everyone hit by a capital gains tax is ultra-rich — capital gains taxes apply to people selling the decades-old family business before retirement as well.

“The government grabs a big chunk of that money, but really, they’re not rich people — they’re actually just middle-class people who have this one big spike in their income,” Edwards said. “Capital gains is saving, it is withholding consumption for the general benefit of everyone when you invest in a business. We would rather Bill Gates keep his money invested than going out and buying a bunch of yachts and sports cars.”