“Washington would move overnight from one of the nine states with no income tax to having the eighth highest rate in the country.”
This is a wild fabrication.
Actually, it’s more like a wild deceit, at least on the part of the WSJ editorial writers who know perfectly well what they’re doing. They are hoping to gull readers into forgetting that income tax rates are marginal: they are assessed only on income above a threshold. And this matters a lot.
Find this article interesting? Support more research like this with a year-end gift!
In fact, under 1098, Washington would have one of the very lowest income tax rates in the nation. As I pointed out when the Seattle Times made the same error, a couple earning $400,001 per year would pay 5 cents in taxes—an effective tax rate of 0.00001 percent. Earn any less than that comfortable sum and your tax rate would be exactly 0 percent. Not too burdensome.
But I should be fair: like most persuasive lies, the Wall Street Journal‘s claim contains a kernel of truth. The highest marginal tax rate under 1098 would, in fact, be one of the highest tax rates in the country. What they leave out, however, is all the context. That “highest rate” applies only to the dollars earned above $1 million annually for a couple. Under 1098, the first 400 grand is completey tax free, and the next 600 thousand is tapped at an unremarkable 5 percent. Compare that to the 40-plus states with income taxes: taxes are generally levied on the first dollar you earn and every dollar thereafter, usually at ascending rates. Simply comparing the tax rate at the highest bracket without explaining the height of the bracket or the rates in the brackets below is something close to an exercise in fraud.
I invite folks to crunch the numbers with me. What you’ll find is that even at stratospheric income levels — couples pulling down more than $1 million annually—the effective tax rate in Washington under 1098 would be much lower than in almost every other state in the country.
Postscript: Credit where it’s due. I didn’t see it until just now, but the Seattle Weekly’s Caleb Hannan beat me to the punch on this story. Hannan is one of the few writers systematically getting 1098 right.