Instead of being an income tax apologist, Chasan should use his column to analyze Washington state public employment comparisons with states of similar populations with the question "Why do we need 30% more to manage state affairs?" and

"Are public employee compensation packages in line with norms in other states and the private sectors that support them?"

"In the meantime, Gates has found an idea he likes just fine. “This is the right tax at the right time,” he laughs."

This coupled with "Well how do they know that?" In response to the question about the Legislature's ability to change the dollar amount subject to the Income Tax downward after two years, is all the ammo the NO folks need.

My real fear is of the legislature dropping the $200,000 ceiling to $100,000 in two years after passage of the income tax. The ruling class rails against Eyeman initiatives but the legislature usually gut his initiatives when they are able. My tax paying experience is that when the Dems sock it to the rich my taxes go up but when the GOP give tax cuts to the rich my taxes stay the same. My conclusion, the Dems consider anyone earning over the poverty line is rich as I've never earned over $80K in a year in 45 years of working for a living.

To JFraker: No need to worry. It can't happen. I-1098 text ensures that any change to the taxable income thresholds would require a public vote. The Legislature can't change them, only a majority vote of all Washington voters can.

Chasan wants us to take a dispassionate look at the state income tax issues, citing Krugman's call for a rational world. Good luck, guys! This is 2010 and the crazies are baying at the moon. Utter lunacy has become a badge of honor -- proof positive of populist chops.

I think the 1098 supporters need to trumpet the benefits of a B&O; tax reduction to truly small businesses. The Chapter S argument only applies to fat cats who already have big incomes and are branching out into new enterprises. For the Main Street mom-and-pop startup scraping to get by, paying no B&O; or income taxes until reaching $400,000 net income is a huge benefit. These are the people who desperately need relief from the current economic pain.

Perhaps the sponsors of the initiative have somewhow addressed this, but the problem with the initiative could be constitutional. The state Supreme Court declared in 1932 (in throwing out our first income tax) that income is property, and constitutionally all property must be taxed at the same rate. Having a graduated tax was the downfall of that first income tax, and this tax could fall victim to that too. Meanwhile, the overarching problem remains that Americans want all of the benefits and services of government, and they want them for free. It's also worth noting that the so-called high-tax states have the best quality of life, while the low-tax, strong business climate states have low quality of life scores and tend to suck in more federal dollars than we do.

I don't know that a Supreme Court decision from 1932 carries all that much weight anymore, and I 'm sure that Bill Sr. had a few lawyers research that before he decided to back this initiative.

As far as the Legislature tinkering with I-1098 two years after it passes, I seriously doubt that they've got the courage to do that. They've demonstrated an amazing ability to let "the will of the people / mob rule" hold sway over good public policy (their recent set-aside of I-960 notwithstanding). After all, the very reason Gates decided to back an initiative is because the Legislature has failed to adopt the recommendations from a commission, chaired by Gates, from almost a decade ago.

The biggest issue is that this is a referendum. That means ANY part of it can be changed by a simple majority of the legislature after two years.

I'd like to tax the "rich" but in fact there aren't enough of them to fix the budget hole in Washington's State spending gap. And if we are going to add an income tax, it's time to get serious and do it the right way via a state constitutional amendment and not this end run do-hicky that will just create another tax without limits. Oregon has the income tax but no sales tax, they are in trouble. California and NY have all three (property, sales, B&O;, income) and they are in trouble. Really folks, an income tax isn't going to fix this state's budget problem.

@jlederer: I don't trust the legislature to not tinker with the I-1098 language in two years so they can lower the threshold to keep their union bosses happy with pay raises for the union employees. They went in the face of the people to gut I-960 and will do so again with the existing legislative leadership.

Why doesn't the title read "Would a state income tax help the economy--Far from proven."

The initiative, like any other initiative, once passed can be changed immediately by the legislature by a supermajority vote in both houses. It can be changed by a simple majority after two years. That includes the requirement of a public vote. It also includes the income parameters in the Gates initiative. It includes every provision.

For the past 75 years, the Washington Supreme Court has said that our state constitution would need to be changed to permit a graduated income tax. But Gates Sr. has an opinion from Hugh Spitzer, a law professor at the UDub Law School, that this Supreme Court will probably overturn that precedent to find a graduated income tax is now constitutional in Washington.

Once that happens, the legislature can make all kinds of new tax levels. And contrary to the beliefs of some earlier posters, the legislature routinely amends initiatives as it does other laws. And it particular, if they aren't first overturned by the courts, it changes Eyman initiatives as soon as the constitution permits.

To read a short summary of Dr. Spitzer's views, go to: http://dor.wa.gov/Content/AboutUs/StatisticsAndReports/WAtaxstudy/Appendix_B.pdf

The reality is that no one really knows what the imposition of an income tax will really do but it is sure to create uncertainty--the last thing business owners need if they are going to create jobs. The national health care "reform" increases capital gains taxes and taxes medical devices, an important WA state industry.

What is for sure is that it will make WA less competitive vis-a-vis other states. While it would bring in some money, it won't be enough to balance next year's state budget.

There is no accountability for the use of that money either and the fact that 1098 puts the money into dedicated accounts is meaningless. The legislature raided all kinds of accounts the past two years to balance the state budget. Plus, how "fair" is it really to just tax high wage earners, who are often businesss owners/job creators?

And once the amount of money is less than what is projected the legislature will lower the income threshold.

Remember that Gates, Sr is just a figurehead--1098 is primarily funded by SEIU and the state employees union--do you really think they care about improving education or health care? No, they want more benefits for themselves at the taxpayers' expense. 1098 is a bad idea.

A good analysis, not found elsewhere in this media desert. Keep them coming. And include a focus on the fact that I-1098 is based on adjusted gross income under the federal tax code. Anyone with money can buy the best tax advice available to reduce that amount to a minimum.

Predictions if 1090 passes:

1. Washington's unemployment rate will increase
2. Washington will have a net outflow of businesses
3. Washington will have a net outflow of “wealthy” people
4. The income from the tax increases will fall short of projections
5. The tax cancer will spread to other Democrat led states

http://clearfogblog.wordpress.com

I'd really like to know what discernable trend in the actions of the Legislature causes you to be so sanguine. If "trust the lawmakers in Olympia" is considered a strong argument in favor of this initiative, few will be presuaded.

Most informative article on the subject I have seen. One more thing that I think is pretty huge is the federal income tax offset for those who would pay income tax under I-1098. All of those people would be in the 35% federal income tax bracket (and maybe 39% next year). Schedule A, line 5, allows taxpayers to deduct either state sales tax or state income tax. Since we in WA don't have an income tax, we have no choice but to deduct sales taxes. The maximum allowable deduction for a King County taxpayer with income over $200K, married filing jointly, is only $3,339 without proof of actual taxable purchases. Under I-1098, someone with an AGI of $2 million would pay to the state, and be able to deduct from federal tax, $30,000 on the amount earned from $400K to $1 million plus $90,000 on the amount over $1,000,000, for a total deduction of $120,000. The taxpayer would get 35% of it back as a federal offset, leaving a net outlay of $78,000, or only 3.9% of the couple's AGI.

If the people or our legislators are smart enough to allow the nominal 9% income tax to percolate down to the lowest income levels and replace all of the regressive taxes we have now, all taxpayers who itemize would be able to take advantage of federal offsets according to their respective tax brackets.

Not only that, but if we no longer had property taxes, there would be no need for 39 tax assessors' offices. In my county, that would mean 26 fewer county employees. Statewide, assuming 26 employees making about $40,000 each per county, that would save WA taxpayers more than $40 million. Would a flat income tax reduce other bureaucracies as well? Probably. How much bureaucracy would be required to collect a tax that would be 9% of the AGI already calculated on the Form 1040?

So Majorpayne your theory is that we need to extend the proposed tax to the lowest bracket (10% going to 15% under Obama) in order to get a 9% credit against their Federal Income Tax. Wow, you had better call Bill Gates Sr. and let him know because he is really missing the boat by not promoting that to the voting public before November.

Where in this proposal is the property tax eliminated? A 20% portion of the the State portion of the Property tax is proposed, that's it.

I-1098's limited scope will show the Washington public that an income tax would do a lot of good and no harm (just as it has done in 44 other states), and may pave the way for the flat tax that I suggested (and that Steve Forbes and others proposed for the federal government back in the 1970s). I would have no problem with going directly to a flat tax, but I-1098 is the measure that's on the table, probably because Mr. Gates knows that most of the public is as skittish as most of the people who write comments in this forum seem to be. Implementing it also would establish the mechanism for administering an income tax, since there is none in WA now.

I-1098 would replace 20% of the state school tax, which is 20% to 26% of the total property tax, depending on the county. It would cut 20% from the 26% of my total property tax that is state school tax, or 5.2% of my total bill. That's a saving of $208, based on my most recent tax bill. It also would replace up to $4,800 of every ordinary business's B&O; tax. Our current state taxes average 8.9% of income across the board (vs. 9.7% for all states, according to the Tax Foundation and others). It logically follows that a flat income tax at the same rate would replace (or "eliminate") all the current taxes—sales, B&O;, property, and excise—and the associated bureaucracies.

Nice analysis. One more point about Washington's "regressive" tax structure. Calling it that is sheer demagoguery. The largest tax by far is the Federal Income Tax, which is progressive, and most of which goes back to the state. Looking only at the additional state taxes in a vacuum is deceptive.

Note that I-1098 would also eliminate the $4800/yr B&O; tax on lawyers making $200k/year.

I've long said that I would support a universal income tax if the sales and property taxes were completely eliminated in the bargain. However, except for me, nobody except the good Major, above, seems to be proposing that. The proposal is always to institute an income tax along with the assurance that other taxes will be trimmed back to compensate. That promise is only good until the next legislative session, at which point all the taxes will begin to ratchet up again. The SEIU tax initiative is exactly the kind of Trojan Horse that will lead to such an outcome. This state needs real tax reform, not the addition of more taxes.

this state needs reals SPENDING reform, Mr. Breneman.

I didn't say it didn't.

Limiting the discussion to the subject of the original article would be a big help. According to the ITEP report Mr. Chasan references, state taxes are 69% of the state's revenue, and that is almost exactly the national average. Our state taxes average 8.9% of personal income, vs. the national average of 9.7% for all states. Merging those two facts indicates that overspending is not our main problem. Although Mr. Richards' comment about MOST of our federal taxes coming back to the state is beside the point, let's see what the facts are. According to the Tax Foundation, some states actually get back more from the federal government than they pay in. Washington gets less, 88 cents on the dollar, which tends to exacerbate our problem, not help. Montana ($1.58) and Idaho ($1.28) get more back in federal spending than they pay in taxes. Check it out.

Of the amount we pay in taxes, 41% comes from sales taxes, vs. the 25% nationwide average. Sales tax is regressive, and a level that is far above the national average is VERY regressive, which causes potential retail customers to search for low-tax buying opportunities, like nearby states and local military installations. That's a much bigger problem for Washington businesses than paying an income tax on the much bigger profits that would materialize from a more competitive retail environment.

Plotting all of our state taxes as a percent of income as a function of income, as the ITEP report does, shows that the poorest people in Washington pay 6.6 times as much of their income in state taxes as the richest. That is a horrible fact, not demagoguery.

I agree that the ideal would be a flat income tax that replaces all taxes we have now, and I frankly can't see why no other state has figured out how to do it. I-1098's income tax on our top 3% of wage earners would replace (or eliminate, as Mr. Breneman says) part of everybody's property tax AND all of the B&O; taxes that 80% of our businesses pay AND bring in over $2 billion a year in additional revenue. It does not take a whole lot of imagination to envision a 9% flat tax on 100% of the state's taxpayers replacing all of the rest of our taxes AND eliminating a huge amount of our bureaucracy AND weaning us off the need for federal handouts. As I said, I-1098 could demonstrate to the naysayers and worrywarts that it would work. Can't we just hope that the legislators we elect are smart enough to follow our lead if we approve I-1098?

How is B&O; NOT more of a sales tax than an "income" tax? The tax is NOT based on "profits"- or "income"- but on transaction volumes.

I worked for an Oregon green-grocer who considered opening a stand in Clark County, but discovered that, if he wanted to "pass on" the B&O; tax to his customers that they could save money by driving across the river (where most of them already worked) and buying from his stand there.

B&O; Does hamper the small business community... and the very wealthiest people (despite their designation by "seattle deadhead" as "high wage earners") aren't working for "wages", in most cases. ^..^

I generally agree with this. For David Brewster to use a single factor to draw a conclusion is in accurate. There are many factors despite income taxes that could share blame for economic growth; here's afew: transportation, regulations, access to and the cost and quality of labor, proximity to related products/suppliers/their own facilities. Proof positive: Boeing moved their HQ to Chicago, in a state with an income tax. The problem with this initiative includes that it throws more money at specific areas while preserving inefficiencies in government. Why do most if not unionized state workers get at least a 5% longevity increase every year until they reach the top of their salary ranges, 120% of their range average, not related to performance in any way, and in years where the legislature has granted it, a COLA in addition? Why are new buildings of higher education constructed when their existing classrooms are not fully-utilized during the mid-days and evenings? Why do some directors make six-figure incomes at some of the institutions of higher education, perhaps 30% more than their highest-level staff member? Because of the successful "we'd all pay more taxes" scare that resonates well with people considerably under the tax threshold coupled with proponents' unwillingness to put stringent safeguards on their plans, this initiative is here. If these weren't the conditions, the right tax combination might look something like this: income taxes pay for state functions, and voters would be very sensitive to changes therein; property and sale taxes - which all have to be voter-approved, pay for local and county functions, with no out-of-state exemptions (I'd add far-increased transparency in financial disclosure for all state agencies to boot). Imagine what a 3.5% sales tax in King County might do for tourism or a 1.7% local sales tax in Vancouver would do for in-state sales (vs. driving to Oregon) or a 1.6% local sales tax in Spokane County might do in attracting Idaho customers (where it's 6%, even on food)?