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Our taxation identity problem

With a giant hole in the state budget and a huge burden on the poor, some are thinking new taxes or tax reform. Opposition is certain, but maybe the problem is with reformers' off-putting language, like "regressive."
Washington's state capitol

Washington's state capitol Creative Commons

We have a taxation identity problem in Washington. When it comes to taxing the poor we are the worst in the country. Solutions have stalled for decades, in part because of the language we use to talk about it. As the state budget careens toward hitting the wall — hard — we need to find a more compelling way to talk about inequity in taxation.

At a Crosscut editorial meeting this week, tax reform advocate Bill Gates Sr. mostly let the facts speak for themselves. With simple charts and graphs (PDF) and a few minutes' discussion, he showed how perversely out of whack Washington's taxation structure is at both ends of the spectrum. Washington has the most regressive tax structure in the nation, according to the latest report (PDF) from the Institute on Taxation Economic Policy.

We've heard that phrase before. What it really means is that we punish poor people with higher taxes than everywhere — and everyone — else. And not by a little. Washington taxes poor people about 17 percent of their total income, more than conservative redoubts like Arizona. More than Texas. More than Florida.

How is this fair? How does it square with our sense of the kind of place we want Washington to be? Would we ever design such bad policy on purpose?

Washington's "punish the poor" tax policy has existed for decades. It persists partly as a result of bad branding. Thirty years of talk about the "most regressive taxation structure, wonk wonk, blah blah, zzzzzzzzz ... " has taken its toll. The old language is stale from overuse. Reform efforts are routinely overwhelmed by reflexive carping that "no tax is a good tax" or "here they go again" or other radiations from talk radio. To change that will require changing the way we talk about taxes.

Taxes are simply a way to pay to get things done for the common good (fire departments, air traffic control, child education, an army, a safety net, take your pick.) There are good taxes and bad taxes and the smart thing to do is to pick the good ones and ditch the bad ones. Just like ballplayers, schools, or burger joints. There are choices to be made if you can muster the will and smarts to do it. Tax policy should not be made by accident and ours is the cruelest of accidents.

Washington's tax structure should outrage progressives and offend conservatives alike. Whether a humanist, a person of deep religious conviction, or just one who values good government, a "tax the poor the most" policy makes no sense — objectively, morally, politically.

We may think we live in a progressive place, admire our forward thinking, celebrate our creative, business, and civic innovation. We are wrong — very wrong — about all of this when it comes to something as basic as how we tax the least fortunate among us.

That's a tough bit of civic self-image to swallow, but it will not likely change until we own up to it — and then get angry about it.

Matt Fikse-Verkerk (Twitter: @mattfikse) covered urban affairs, politics, tech, and business at Crosscut from 2009 to 2014. He lives in Seattle and works for a biotechnology firm in Redmond, WA.


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Comments:

Posted Thu, Dec 10, 8:48 a.m. Inappropriate

Do you think, Matt, that there's a problem with distancing people from the real cost of government? Because that's what happens when you institute a "progressive" tax structure. Those who pay far less in taxes (or none at all) will have no reason NOT to vote for more benefits from the public treasury because to them, it's free. That's the reality, and it's not a recipe for sustainable government. In the interests of the common good, rich and poor alike should feel the cost of government lest they be tempted to think it's free.

bthornton

Posted Thu, Dec 10, 9:24 a.m. Inappropriate

From a December 20, 2006 story in the Seattle Times...

Saying we're in "exciting times," Gov. Christine Gregoire on Tuesday proposed dramatically increasing state spending by more than $4 billion over the next two years.

Here's the link: http://community.seattletimes.nwsource.com/archive/?date=200

And in case you were concerned our budgetary crisis might cut funding to the environmental/tribal campaign supporters; fear not! She is increasing staffing to the Puget Sound Partnership by 27%. And increasing expenditure from the State General Fund to the Puget Sound Partnership a whopping 665%. In 2007-2009 the PSP received $999,999 from the General Fund. The Governor proposes increasing this to $7,652,000 in 2009-2011.

BlueLight

Posted Thu, Dec 10, 9:57 a.m. Inappropriate

Excellent comments and response to Gates delivering the message that progressives and conservatives alike seem unwilling to pass tax reform that would be more balanced. You say Washington's "punish the poor" tax policy has existed for decades. It persists partly as a result of bad branding. Thirty years of talk about the "most regressive taxation structure, wonk wonk, blah blah, zzzzzzzzz ... " has taken its toll. You say, “The old language is stale from overuse. Reform efforts are routinely overwhelmed by reflexive carping that "no tax is a good tax," is very likely true.

But, might there not also be enormous resistance to reform from legislators and Washington voters because they simply don’t trust government to strike the unfair and inequitable taxes from the books and view the perceived reform to be NEW TAXES on top of the old? If a brand is to be changed and tax reform passed, both progressive and conservative voters will likely insist that the cost of government not grow faster than the cost of living or growth in the economy. That may be key to reform.

KK

Posted Thu, Dec 10, 10:01 a.m. Inappropriate

bthornton said what I was going to say. Thank you.

kieth

Posted Thu, Dec 10, 12:02 p.m. Inappropriate

With all due respects, Mr. Gates charts are crap. For the bottom 40%, where are the income adjustments for food stamp cards (at $200/ month, add $2400 annually).
Utility assistance ($750 annually plus 1/2 off your heat bill)? Free lunches for your kids ($1500)? Child care assistance and child care tax credits? The federal income taxes not paid?

The only fair solution happens when we all pay a flat rate tax! bthorton is right; the poor won't respect the rest of us until they contribute, too.

Posted Thu, Dec 10, 2:05 p.m. Inappropriate

bthornton is right. A parasitically "progressive" tax structure is exactly what has gotten California into such trouble. The sad fact is that whatever stupid ideas come out of California government eventually enamor lawmakers in Olympia. They will pull us over the same cliff if the true cost of government is not visible to, and shared by, all citizens. I support a flat-rate income tax paid by all, in concert with eliminating the sales and property taxes entirely. That way all productive citizens will see on a regular basis how much state government is costing them, and hopefully they will be able to wean themselves from all of the "essential services" that the governor and lawmakers love to saddle us with.

dbreneman

Posted Thu, Dec 10, 9:49 p.m. Inappropriate

Thanks for a thoughtful piece and I agree that much of this issue is how we have and do frame the issue of collectively paying for the common good.

I must say that I'm astounded by the anti-poor comments that suggest "they" are trying to get away with something and steal from the rest of us because "their" psychology is somehow warped. Dickens identified this phenomenon as "Scrooge," and, correctly in my judgment, analyzed it as a psychopathology: the obsession with "mine" and the complete abandonment of any sense of empathy or sympathy with the plight of others. Maybe people like bthornton and dbreneman need to take a break from staring into the mirror/computers of their egoistic self-absorption and see that we live in a world with others who need help--not because they are lazy or greedy or crafty, but because nature or history dealt them a far worse deck that others were dealt. The callousness of their position is shameful.

bkochis

Posted Fri, Dec 11, 9:13 a.m. Inappropriate

bkochis, ad hominem attacks on those with whom you disagree don't lend your position any credibility.

My statement doesn't have anything to do with thinking that the poor's "psycholohy is warped." It does, however, have everything to do with human nature and the reality that when something is "free" to a person (even just apparently so), they will seek more of it. I grew up poor, and it was important for my household to know that government came with a cost, FOR EVERYONE.

By the way, your attitude smacks of the belief that the only way to help the poor is to subsidize them. If you want to help the poor, the best thing you can do is reach out PERSONALLY and help those in your own community rather than re-jigger the tax code.

bthornton

Posted Fri, Dec 11, 12:34 p.m. Inappropriate

Wow, I wish I could craft an argument with the skill of bkochis! It would certainly elevate the debate here. I guess I'm way out of my league in the presence of such intellectual giants. I was making anti-poor comments and didn't even know it!

Gotta go; Cratchit's heading for the coal bin again...

dbreneman

Posted Fri, Dec 11, 1:35 p.m. Inappropriate

dbreneman, you mean your Cratchit can walk? Mine is chained to his desk, counting and re-counting the vast sums of money I make working at a non-profit organization. I do let him out occasionally for bathroom breaks.

I have another indentured servant who handles the coal. I've found the division of labor works better.

bthornton

Posted Fri, Dec 11, 2:54 p.m. Inappropriate

Bthornton seems to fails to realize that our current system does just what s/he is handwringing over. Or current system distances the payer from the services, in this case it's the poor are being taxed to give to the rich. I think the fallacy stems from a couple misconceptions: that only the poor benefit from government services (the wealthy benefit immensly from government subsidies such as deductions, mortgage subsidies, roads, police, fire, etc), second, that the poor are inherently more prone to overuse services than the rich (The nerve that poor families get food assistance. In reality, these same people are paying sales taxes on virtually everything else they buy. Meanwhile the wealthy routinely buy new products because deductions make it cheaper to more quickly replace goods, so they overuse boats, vehicles, fuel, etc.)

SethCool

Posted Fri, Dec 11, 4:57 p.m. Inappropriate

Every day I realize I know less and less, but my memory still works. I remember when the property taxes were a tiny fraction of the mortgage and then when the relationship switched.

The poor that we may or may not be anti about? For what it is forth, I also remember when the poor were rich enough to pay property taxes, proportionally, of course. I remember my mom counting the pennies to do so. And I can tell you where my dad got his voting theory--he voted for every bond measure, etc. that meant local employment. He got that theory from all the times he came home mid-day--not enough work for all the guys with their pegs in. He was proud of that theory, although I suspect they drummed it up at the union hall, after he got enough seniority to get in that is.

I remember some guy with the first or last name of George who wanted a flat tax on property so people would stop holding property as opposed to developing it to its "highest and best use." Now I see people want a flat tax period and no property tax.

Now didn't we just vote that "we" were fine with government growing faster than the economy? I am not sure which of you are saying "who" did or didn't do that. Then, when you switch back and forth between ad hominem and respectful dialogue, I get all confused. Good thread though.

afreeman

Posted Fri, Dec 11, 6:27 p.m. Inappropriate

SethCool, you see misconceptions where none exist. In no way do I believe that only the poor use or benefit from government services, nor do I believe that the poor are more prone to abuse government services. I realize it makes your argument easier to build that straw man, butit won't work.

Rich and poor alike use government services, and so rich and poor should have to realize the cost. The federal income tax structure is so "progressive" that it's even redistributive. Below a certain income threshold people not only pay no taxes, but the government pays them (and that's on top of various welfare assistance they might be receiving).

All people are a mix of good and bad. The rich can abuse corporate welfare or tax loopholes, and the poor can abuse welfare. It's human nature. I'd prefer a tax structure that didn't create or perpetuate opportunities for moral hazard (defined as "The fact that a party insulated from risk may behave differently from the way it would behave if it would be fully exposed to the risk" on Wikipedia).

And for what it's worth, I'm neither wealthy by any standards nor did I grow up with means. I grew up poorer than most in the area. But I believe that I have as much right to the $20 in my wallet as Bill Gates has to his billions. Just because he has more doesn't give the government the right to take away a bigger percentage than they take from me.

bthornton

Posted Fri, Dec 11, 9:27 p.m. Inappropriate

Microsoft makes its profit in part because Washington citizens subsidize the roads and infrastructure that get its employees to work each day. To take one small example: Microsoft does not pay the gasoline tax; its employees do. To his personal credit, Bill Gates returns some of that profit to the State via the Foundation, but that doesn't change the basic inequity that citizens of the entire State subsidize at the pump Microsoft's transportation needs (including, in part, the 520 re-build). So, no, Bill Gates does not have the same "rights" to the $20 in his wallet as everyone else--he has gotten it (not "earned" it) because his employees have built the infrastructure for him from their own wallets and their work. That system is a function of public policy, not some fantasy analysis of "human nature."

bkochis

Posted Fri, Dec 11, 10:12 p.m. Inappropriate

If you think that the "rich and poor alike use government services," then you might be interested in this that suggests the rich and the poor are not exactly treated the same in this society:

http://www.nytimes.com/2009/12/12/health/12medicaid.html?emc=eta1\

The fantasy of equality is just that, a fantasy.

bkochis

Posted Sat, Dec 12, 11:50 a.m. Inappropriate

bkochis, I guess it makes sense to change the direction of the road when you don't like where it's going. Ok, I'll follow. I didn't say anything about rich and poor being "treated the same." I said rich and poor both use government services of one sort or another. The article is interesting but irrelevant to what we've been discussing, though I should thank you for giving a perfect example of why we need less government in health care, not more. Do you want the government making those kinds of "cost effective" decisions for everyone? Because that's what will happen as government's role in health care expands.

As for your comments on Gates, whether you like it or not Bill Gates has earned his money. Maybe he's earned more than you think he should have, but we're not about to canonize your personal preferences into moral imperatives (Deo volente).

Let's say Gates decided to uproot Microsoft completely and go to another state. Would the overall economic impact (on both the private and public sectors) be positive or negative? That's a no-brainer. The state would lose lots of jobs, and the government would lose not only the tax revenue from Microsoft but also from the people who work there. Gates pays taxes. The employees pay taxes. Now perhaps we could agree that the business tax system in WA should be flat and equitable so no business is treated preferentially? It's not, and Microsoft gets breaks that other companies do not. But the company is an overall economic benefit to the public and private sectors.

Gates has earned his money legally and therefore has a right to it. Perhaps you're comfortable giving government the power to decide how much money each of us should have, but I'm not. I think history vindicates my stance on that.

bthornton

Posted Fri, Dec 18, 11:55 a.m. Inappropriate

Gates is not paying his share ofthe taxes because he has strategicly placed his high earners in a state without income taxes and he has placed his lisencing opperation (at least virtually) in a state that does not have a Business and Occupations Tax. Therefore the states of Washington and Utah both loose on significant revenue.
Donebe

donebe

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