The new tax created by I-1098 would top out at 9 percent of adjusted gross income, with no deductions. That’s not quite the highest rate in the country: Oregon’s, at 11 percent, is at the top. But Oregon has zero sales tax. We would have high rates of sales and income taxes…
This is plain wrong. We would not have a high rate of income tax under 1098.
Let’s do the math. If 1098 passes, a Washington couple earning $400,001 per year would pay… wait for it… a whopping 5 cents in income tax.
A whole nickel! Run for the borders!
In other words, for a couple pulling down $400,001 a year, 1098 would institute an effective income tax rate of 0.00001 percent. I don’t think it really compares to, say, Oregon’s tax structure in which the same income would result in $38,272 in taxes, an effective tax rate of 9.6 percent.
The comparison in the editorial amounts to deception because it completely ignores that income tax rates are marginal tax rates—they apply only to income earned above a threshold. (See all state income tax rates here.)
How this works in practice makes a big difference.
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Oregon residents pay tax on the first dollar of income they earn and on every dollar thereafter (at a rate that ascends with income); while under 1098, Washington couples would pay nothing at all on the first $400,000 of income. (Single earners would pay nothing on the first $199,999.) In other words, unless you’re doing extremely well for yourself, your income tax rate under 1098 would be exactly zero percent.
In no sense would the two states have anything like a comparable income tax rate. And the Times’ comparison to California is equally misleading for the same reason.
Now, I should be fair. As incomes go up beyond the tax thresholds, they become broadly more comparable, but only in the very loosest sense. A couple would have to crack $1 million annually to pay 9% in Washington, and then they’d only pay it on the dollars in excess of the million. In other words, it is mathematically impossible for Washington residents to pay 9% of their total income in taxes under 1098—even if someone earned a billion dollars a year.
In Oregon, by contrast, that couple would be paying 11% on every dollar earned above $250,000 (as well as a significant tax on income below that level, which would be tax-free for the Washington couple). When you crunch the numbers, it turns out that even at stratospheric income levels, Oregon residents are paying two or three times the effective tax rate as Washington residents under 1098. It’s not even close.
But maybe what’s more baffling about the Times’ editorial is that it completely ignores what the 1098 tax revenue would be spent on. Mostly—and this is kind of imporant—it actually reduces taxes for small businesses and middle class earners.
It’s all enough to make one wonder whether the Times is more concerned with the fortunes of the super-wealthy than with the state’s real economic health.