1. THE PUGET SOUND ECONOMIC FORECASTER The Great Depression and the Great Recession: Two Peas in a Pod Dick Conway The Puget Sound Economic Forecaster Conway Pedersen Economics, Inc. www.economicforecaster.com

2. THE PUGET SOUND ECONOMIC FORECASTER U.S. Real Gross Domestic Product

3. THE PUGET SOUND ECONOMIC FORECASTER Lessons from Decades of Forecasting Dick Conway The Puget Sound Economic Forecaster Conway Pedersen Economics, Inc. www.economicforecaster.com

4. THE PUGET SOUND ECONOMIC FORECASTER Forecasting Lessons Forecasts are bound to be wrong, at least to a degree. Charles Tiebout Forecasters cannot promise accurate predictions, only reasonable ones. Dick Conway, Jr. Be brave. Dick Conway, Sr.

5. THE PUGET SOUND ECONOMIC FORECASTER A Forecaster’s Case for Tax Reform Dick Conway The Puget Sound Economic Forecaster Conway Pedersen Economics, Inc. www.economicforecaster.com

6. THE PUGET SOUND ECONOMIC FORECASTER Tax RevenuePercent Retail sales and use7,225.949.8 Business and occupation3,126.021.6 Property1,879.413.0 Other2,266.115.6 Total14,497.4100.0 Washington State Government General Fund Tax Revenue, FY 2012 Millions of Dollars

7. THE PUGET SOUND ECONOMIC FORECASTER Characteristics of Tax Systems Washington Grade FairnessF StabilityD TransparencyD AdequacyF VitalityD

8. THE PUGET SOUND ECONOMIC FORECASTER TaxPersonalPercent RevenueIncomeof Income 197091.3838.610.9 1980230.02,301.510.0 1990519.14,846.710.7 2000893.28,559.410.4 20111,360.812,947.310.5 Average (1970-11)------10.7 High (1972)115.6992.611.6 Low (1982)273.22,766.89.9 U.S. State and Local Government Tax Revenue, 1970-2011 Billions of Dollars

9. THE PUGET SOUND ECONOMIC FORECASTER WashingtonWashingtonU.S. State State and LocalStateand Local GovernmentGovernmentGovernment FY 199511.68.010.9 FY 200010.06.710.6 FY 200510.06.510.8 FY 200610.46.811.1 FY 200710.56.811.1 FY 200810.16.310.8 FY 20099.55.810.5 FY 20109.65.810.6 Washington and U.S. State and Local Government Tax Revenue, FY 1995-FY 2010 Percent of Personal Income

10. THE PUGET SOUND ECONOMIC FORECASTER Actual Tax Revenue GapRevenue Gap RevenueNormal Tax RateU.S. Tax Rate FY 199514.81.20.9 FY 200018.7-1.3-1.1 FY 200523.0-1.5-1.6 FY 201026.8-3.0-2.6 FY2005-10157.9-11.0-12.4 Note: The revenue gap under the normal tax rate is the difference between the tax revenue that would have been collected if the effective tax rate had been 10.7 percent (the “norm”) and the actual tax revenue. The U.S. tax rate is the current-year effective tax for all U.S. state and local governments. Washington State and Local Government Tax Revenue Gap, FY 1995-FY 2010 Billions of Dollars

11. THE PUGET SOUND ECONOMIC FORECASTER Percent FY 2007FY 2012Change State tax revenue14.214.52.3 Personal income261.6305.916.9 Effective tax rate (%)5.44.7-12.6 State tax revenue14.214.52.3 State and local deflator (05=1.000)1.0811.25416.0 Population (thous.)6,416.26,860.16.9 Real per capita tax revenue ($05)2,0441,686-17.5 Personal income261.6305.916.9 Consumption deflator (05=1.000)1.0401.14910.5 Population (thous.)6,416.26,860.16.9 Real per capita income ($05)39,20438,809-1.0 Washington State Government General Fund Tax Revenue, FY 2007-FY 2012 Billions of Dollars

12. THE PUGET SOUND ECONOMIC FORECASTER Puget Sound Taxable Retail Sales

13. THE PUGET SOUND ECONOMIC FORECASTER PersonalUnemploy-Housing Incomement RatePermits (bils $)(%)(thous.) FY 2012306.68.6324.3 FY 2015353.67.3734.2 Percent change15.3-15.640.7 Model: ∆sales = 0.802∆income - 0.119∆unrt + 0.026∆hs (14.6) (-5.5) (3.1) Prediction: ∆sales = 0.802(15.3) - 0.119(-15.6) + 0.026(40.7) = 12.3 + 1.9 + 1.1 = 15.3 ERFC prediction: ∆sales = 15.3 Washington Taxable Retail Sales Model and Forecast

14. THE PUGET SOUND ECONOMIC FORECASTER Tax Policy Options Maintain the current tax bases and tax rates, causing a further decline in the adequacy of state and local tax revenue. Expand the tax bases and raise the tax rates, exacerbating the unfairness of the tax system. Introduce an income tax, reduce the sales tax, and eliminate the business and occupation tax to increase the fairness, stability, transparency, adequacy, and vitality of the tax system.