Just like talking about sex, talking about taxes can put most of us on edge. But it doesn’t need to be that way. As voters in Washington gear up for what might be one of the most progressive, reasonable and fair changes to the state’s tax system, I’d like to offer three questions to ask when evaluating tax measures—including the income tax proposal that’ll likely be on the November ballot. (Sorry, we can’t offer such an easy checklist for every controversial topic!)
This summer in Washington State, signature gatherers are looking for registered voters to sign petitions to put Initiative 1098, a graduated state income tax, on the ballot in November. The campaign appears to have gathered enough signatures to do this. This isn’t the first time a state income tax has been debated in the state. Washington has a long history—more than 70 years—of lively debate about the issue. Since the 1930s, nine state commissions have been appointed to make recommendations for an income tax, and the issue has been voted on by the people or the legislature 8 times, only to fail to get enough votes, be vetoed, or be overturned by the courts.
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I wrote 8 years ago in the Seattle Times, about the most recent recommendation for an income tax by the Washington Tax Structure Study Committee, also known as the Gates Committee. Bill Gates Sr. chaired the group and now chairs the effort to pass Initiative 1098.
Former Governor Gary Locke appointed the Gates Committee to review the state’s tax system and make recommendations for improvements. But by the time it rendered its recommendations, politicians in the state had come to consider supporting any kind of income tax as political suicide, in spite of the fact that the state’s Democratic Party—which has dominated the governor’s office and the legislature for the last thirty years—actually included an income tax in its official platform year after year. The Gates report essentially fell on deaf ears even among progressive leaders who considered it smart and financially responsible, but…alas…politically impossible.
But after 8 years on the shelf, the Gates Committee report is back in 2010. And with the economic downturn, and legislators finally realizing the inherent instability of the state’s current—and terribly regressive—tax system. It looks like this time a state income tax has a chance of passing. Now is the right time.
Initiative 1098 proposes a tax on individuals who earn more than $200,000 per year while reducing every property owner’s state property taxes by 20 percent. It also eliminates the state’s regressive business and occupations tax (B and O)—collected on gross receipts, not profit—for 80 percent of businesses in the state. The remaining revenue collected, about $1 billion, will be dedicated to reducing school class size and funding the state’s Basic Health Plan. The tax ends up being about 1 percent for the high-earners in the state, or about $5,000 for a household that earns $500,000 per year.
So, let’s talk about taxes, and review Initiative 1098 using three basic questions which, as a voter, I ask about a tax measure to decide how I’ll vote.
First, is the proposal a sustainable way to generate funds to operate the general functions of government? The Gates committee convened 8 years ago found that Washington’s mix of sales and property taxes create volatility in revenue collections causing “revenue shortfalls in economic downturns, precipitating destabilizing fiscal crises.” That’s what we’re seeing right now as the economy sputters and the state struggles to make ends meet. Adding an income tax to that mix, the committee concluded, would provide more stable revenue needed to fund critical state services.
Second, what behavior does the tax measure promote or discourage? At Sightline we encourage policy that taxes bad stuff (pollution, resource depletion) instead of taxing stuff we want more of (jobs, paychecks, enterprise). In the case of Initiative 1098, the proposed elimination of the Business and Occupation tax on small businesses would promote job creation. The current scheme for B and O requires a shop owner, for example, to pay taxes on how much money she collected in a given period, even if the costs of operating the business—salaries, rent, other expenses—exceed the money in the cash register. In other words, the shop owner has to pay the tax even when she loses money. Getting rid of the B and O will mean small businesses have a better chance to survive a tough economy.
Third, is the tax fair? Initiative 1098 isn’t a “soak the rich” proposition. Rather, it takes a very small amount of money from high earners and puts it into support for health care, arguably one of the highest costs for poor families. If those lower income families can spend their money on other things besides health care, it means they have a chance of getting out of poverty. A high-earners tax is far less regressive than, say, a sales tax increase (too often a knee jerk response by state and local government), which consumes a greater share of the income of poor people than those who are better off.
If Initiative 1098 gains enough signatures and appears on the ballot this fall, the income tax conversation in Washington will begin again in earnest. This time, I hope, the benefits of a more progressive, sustainable, and responsible system for investing in our communities will be clear to voters, no matter how much money they earn. Initiative 1098 is carefully crafted to sustainably and fairly raise revenue for investments in the state’s long term future, ensuring better schools, health care, and jobs in the small business sector. As a voter, I think that Initiative 1098 looks like a sustainable measure worth of support.
A note on the image: The image of King John signing the Magna Carta in 1215 is public domain from Wikipedia Commons. One of the baron’s main complaints when they forced the King to sign Magna Carta, which promised them more power, was a peculiar innovation for revenue generation implemented by the King called an income tax.
The whole 1098 campaign is classic Democratic fear-driven, focus grouped, poll-tested policy and politics. It’s aimed squarely at the middle class rather than the poor who bear the brunt of our high sales tax and repeated spending cuts. My landlord’s property taxes already went down 18%. My rent is unchanged. Renters have lower incomes than property owners and constitute a majority of Seattle residents. I’ve been on Basic Health; it’s a surreal joke. It will end in 2014 with health reform anyway. I-1098 is a step forward, but hardly what we need or what it could or should be. We need sales tax relief, not property. We need initiative backers who believe in using campaigns to change peoples’ minds and register and turn out low-income people to vote rather than relying on incorrect assumptions (e.g. that property tax is more unfair than sales) by the middle class. They should expect and be prepared for “class warfare”; not run scared from it.
Anyone who believes that this tax will remain a tax on only those in the upper income brackets needs to have their head examined. Give them a few years of having the extra cash and they’ll think of all sorts of ways to waste everyone’s money and so they’ll need to lower the income limits to increase revenue. Of course nobody will even consider lowering the sales taxes – we’ll have both, and they’ll never go down.
Basic Health is not a “surreal joke.” I have a job that does not pay healthcare. Therefore, I’ve been on it for five years. In 2008, it saved my life by providing for an operation that wouldn’t have happened without it, because I wouldn’t have known I needed surgery (little pain, just a bit of bleeding; I would have had to ignore it if I had been uninsured). If I hadn’t had the operation I would be dead now.As a person living under the Sword of Damocles of a rather large and scary chance of getting cancer, I live in fear of losing Basic Health, because short of some kind of miracle, I would probably have to go out homeless if I had to buy a plan at full cost. I desperately hope this new income tax will pass.Incidentally, all Basic Health personnel I have ever communicated with have been respectful, and several have even been caring.
Jon Morgan,If I were in charge of state tax policy in Washington, I would lower sales taxes before lowering property taxes. But voters—including low-income ones—typically support sales taxes pretty strongly. Sightline has long worked to educate the public about the unfairness of sales taxes. And property taxes are not especially fair, either. They’re just better than sales taxes. So using some of the income tax revenue to reduce property taxes may be partly an effort to win votes. But in the grand scheme, I consider that a small price to pay.Lisa,Thanks for writing and sharing your experience with Basic Health.Ellis,By “they” I presume you mean the legislature, which is an elected body. I support representative democracy, and trust the legislature—which faces the voters for reelection—can find a balance of public and private sectors. (Not that I’m always happy with the legislature’s actions! As Churchill said, “Democracy is the worst form of government, aside from all the others.”)But, you seem to deeply distrust the legislature, so you might be interested to know that initiative 1098 specifically includes provisions requiring a public vote to extend the income tax beyond top earners or to raise rates. Alan
I think this proposition is fair,and long overdue.I was surprised,however,only to see one petition signing opportunity for this,and missed my chance to support it that way due to a pressing obligation.(I mistakenly believed that these petitions had until August to be turned in.)I think it would be great for the state to raise money this way,as there might not be as much dissension and sparring during the times when funds are allocated for the budget.Maybe this money could be increased through investments that would advance State interests(Green or Hazardous Waste Cleaning companies,for example?)Thank You for the oportunity for discussion!
The state government won’t extend the income tax to all incomes. First, it would be political suicide. Second, I’m sure Tim Eyman would put an initiative on the ballot to reverse an income-tax-for-all, and the voters would be able to choose. Third, if the state legislators and the Governor haven’t had the gall to create a high-earners income tax, why would they expand an income tax? This year, they killed a proposal for even a 1% tax on annual incomes over a million dollars. The higher up Democratic politicians have been treating the income tax like a third-rail for decades.Initiative 1098 would boost four things we know are keys of social mobility: entrepreneurship, education, good health, and home ownership. It’s a partial fix for Washington State’s regressive tax system.
History tells shows with time 1098 will affect the middle class and eventually the low income. 1098 sounds good but I keep thinking about the Fed Alt Min Tax. It now affects a class of people the tax was actually supposed stay away from. And how about Fed Income Tax itself? It was a temp tax to fund a war. That war debt has been satisfied but the temp tax has only grown. 1098 is feeding off a class war, rich vs. the rest, with the end in site— a state income tax on all residents. Washington State has over and over proven it can not be trusted to do the will of the people. If the state doesn’t like the way its people vote the state does as it wants. 1098 comes across as getting into the pockets of rich people, how long will it take the state to begin reducing the taxable income level? What’s to stop politicians from lowering the taxable level? The threat of their next political race isn’t the answer. Once the change is made law it’s very difficult to correct. Prevention needs to be written into 1098 without loop holes. Let’s face the truth here, the state needs to live within its means while supporting essential services. Like the majority of her residents do. While coming across as only taxing the rich will 1098 open the door to a state income tax across all income levels?What would happen if the state lowered taxes? Let’s see if I pay less tax I have more money to spend and would generate more tax revenues while stimulating the local economy, more demand equals more production equals more jobs. Guess that doesn’t work or all of those smart rich people would have proposed this instead of a tax upon themselves.
The federal income tax was created in 1913; before we entered WWI and 15 years after the Spanish-American War. The push for a federal income tax was decades in the making. It was not created to fund a war at all.