Are Washington voters ready to soak the rich? Bill Gates Sr. certainly hopes so — although he doesn't describe it or think of it in those terms.
Gates is spearheading the campaign for Initiative 1077, which would impose a 5 percent tax on anyone who earned more than $200,000 a year ($400,000 for a couple), and 9 percent on anyone who earned more than S500,000 ($1 million for a couple). The money would be used to reduce state property taxes by 20 percent, and provide a $4,800 credit on the state's goofy business and occupation tax. The funds left over — an estimated $1 billion a year — would be divided 70-30 between education and basic health.
It's certainly eye-catching politics: The father of the nation's richest man wants Washington to tax high personal incomes.
A state income tax is hardly a new idea, here or elsewhere. Washington is one of only seven states that lack some form of personal income tax. The others are Alaska, New Hampshire, Tennessee, Florida, South Dakota, Nevada, Texas, and Wyoming. Curiously, none of these states is listed among the states facing the largest budget gaps; California, Illinois, and New Jersey top that list.
In this state, a tax on personal income, corporate income, or both, has been passed by the voters or the legislature, and/or put on the ballot for public approval roughly a dozen times in the past 80-odd years. Every time, it has perished: Courts have ruled against it, governors have vetoed it, and the public has voted it down decisively.
Why should this time be any different? Gates' initiative needs two things to succeed: a change in the public's attitude toward the income tax and a change in the state supreme court's. Without the first, it won't pass. Without the second, even if it passes, it will never raise a dime.
The income tax's public appeal reached its high-water mark in 1932, when voters approved Initiative 69, imposing a graduated tax on personal and corporate incomes, by more than two to one. Washington’s farmers had lots of property and not much cash to pay taxes on it. The Grange, representing farm interests, sponsored initiatives to limit the property tax and replace the lost revenue with a tax on income. Organized labor and teachers' unions came on board.
What wasn't to like? At the start of the Depression, not many Americans paid federal income tax. For most citizens, therefore, voting for a graduated income tax meant voting to tax the rich.
Anyone who doubts the Grange framed the issue in terms of class conflict should check out a Grange News cartoon from 1928 that shows three men carrying a log: a poorly dressed man labeled “The Homeowner” struggles with bent knees under the thick end of the log; “The Farm Owner,” dressed in overalls, struggles along with him; a third man, “The Bond Owner,” dressed in a plutocrat’s top hat and spats, strolls along resting a soft hand casually on the small end of the log.
In the same 1932 election that saw them approve Initiative 69 — and vote overwhelmingly for Franklin D. Roosevelt — the people of Washington imposed a 40 mill limit on property taxes. To plug the revenue gap until the income tax went into effect, the 1933 legislature imposed a business and occupation tax. Then in Culliton v. Chase,the Supreme Court ruled that a graduated income tax was unconstitutional. The court reasoned that income was a form of property and the state constitution says clearly in Article III that “[a]ll taxes shall be uniform upon the same class of property.” Therefore, the state could not have a graduated income tax.
Legislators could have come back with a flat-rate income tax, but they didn’t. Instead, they waited the constitutionally-mandated two years for amending an initiative by a simple majority then exceeded the 40-mill limit on property taxes. The people wouldn’t stand for it. In 1934, they passed another 40 mill limit on property taxes but turned down a constitutional amendment that would have authorized a graduated income tax. The income tax was evidently an idea whose time had already passed. “There is abundant evidence that [voters] knew what they were doing,” J.W. Gilbert wrote in the Seattle Times. Whatever their reasons, “[t]he next session of the Legislature . . . must devise new sources of revenue.”
The next session of the legislature did exactly that: in 1935, it imposed a tax on retail sales. And so the legislators completed the trifecta: a limited property tax; a new B&O tax; a new sales tax. Washington’s current tax system was complete.
On more than one occasion, the legislature probably could have passed a flat-rate income tax, but Democratic “progressives” held out for a graduated tax. They pretended the choice was between flat-rate and graduated income taxes. The real choice was between flat-rate and no income tax at all.
The people have never voted for an income tax again. And the debate over taxes has shifted from its Depression-era form of the people versus the wealthy to the people versus their own government. In the 1970s, conservatives started making government itself the enemy. “Taxation had always been unpopular, of course,” Bruce J. Shulman writes in The Seventies, “but it had long remained a weapon of class warfare — a way ordinary Americans could limit the power and influence of the nation’s wealthiest citizens. . . . [Ronald] Reagan transformed taxation: it ceased to be an issue of equity, and it became a matter of tyranny or freedom. Instead of dividing rich and poor, business and labor, the tax issue united them against big government and elitist bureaucrats.”
Gates says he really doesn't know why people voted against an income tax when Washington's moderate Republican three-term governor, Dan Evans, pushed the idea in the late 1960s and early 70s. (Gates and Evans are old friends, both Republicans of the old moderate stripe.) But Gates senses that people are less hostile to it than they once were
And he may be right. Gates sees two key issues: “I think that there is clear need” for more public school funding, he says, referring to McCleary, the February King County Superior Court ruling that the state is violating the constitution by failing to provide “ample” funds for basic education. “At the same time, we have a tax structure in our state that's the most unfair in the country.”
Education advocates celebrated McCleary. Some seemed to relish its rhetoric as well as its conclusions. The state “has passed legislation, it has ordered countless studies, it has commissioned a multiplicity of reports,” Judge John Erlick wrote. “And yet there remains one harsh reality — it has not and is not amply and fully funding basic education.” But McCleary plus two dollars will get them onto an off-peak Metro bus. The legislature won't come up with more money just because a King County Superior Court judge says so.
Like what you just read? Support high quality local journalism. Become a member of Crosscut today!