Would a state income tax harm the economy? Far from proven.
A close look at the debate on the I-1098 proposal. Plus: Does Washington state really have a regressive tax system now?
By Daniel Jack Chasan
August 24, 2010.
Take heart. We're a backwater no longer. Washington may have missed out on the Civil War and the Revolution, but we're in the thick of history now. "The battle between taxpayers and government unions will define the fiscal future of the 50 states,” says The Wall Street Journal ($), “and the newest battlefield is Washington state. That’s where a few rich taxpayers led by Bill Gates, Sr. and the Service Employees International Union (SEIU) are bankrolling a November ballot measure to create the state’s first income tax.”
As David Brewster noted on August 16, the Journal argues that Washington's I-1098 would stifle economic growth. The nine states without income taxes averaged job growth of 18.4% over the past decade, the paper observes, while the 9 states with the highest income tax rates averaged only 8.4%. Gates argues that only 3 percent of Washington households would pay the new tax. “What he doesn’t say is that Washington’s lack of an income tax is among its main comparative advantages in luring those top 3%, along with their businesses and jobs, into the state. . . . Even liberal Democratic Governor Christine Gregoire begins her sales pitch to prospective business investors with the reminder: ‘No income tax.’”
Don't be fooled, the Journal's editors huff. “Income taxes are always sold as a one-time way to reduce deficits,” they write, “but they always become engines of greater spending, and eventually deficits. Just ask Californians."
Actually, no one is selling I-1098 as a one-time way to reduce the state's looming budget deficit. Gates talks about fairness, about raising more money for public education and health care for low income citizens, about tax relief for the vast majority of small businesses. He might reasonably argue that the Washington legislature has proven itself very timid about raising taxes, very wary about stirring up another Tim Eyman initiative.
Dire predictions aside, what really is in the initiative, which will be voted on this November? And how many of the economic arguments against it hold up?
In a nutshell, 1098 would impose a 5 percent tax on individual income above $200,000 a year ($400,000 for a couple), and 9 percent on individual income above S500,000 ($1 million for a couple).
The Journal claimed that "Washington would move overnight from one of the nine states with no income tax to having the eighth highest rate in the country." Gates disputes that. He says that “people who say our income tax is just like Oregon and California miss the reality. They need to look at 'effective' rate.” Once a person crossed a threshold, the tax wouldn't be levied on income up to that level. The tax rates would apply only to income above the thresholds. For a couple with income of $1 million, Gates explained, “there would be a 5% rate against the amount of income over $400,000 or .05 x $600,000 or $30,000. In other places where the exemption is, say, $40,000, the tax is applied to $960,000 at a rate from 3% up to 9% for a total like $72,000 — a huge difference and an effective rate of 7.2%.”
Sightline Institute disputes the now-infamous Wall Street Journal characterization, too. Sightline has posted graphs showing that a single person earning $350,000 would pay less income tax here than in any other state that taxes income. The Washington taxpayer would pay about $8,000, while the top state, Oregon, would extract $35,000, according to the chart.
The initiative would raise an estimated $1.7 billion a year. The first $700 million would be used to reduce state (not local) property taxes by 20 percent, and provide a $4,800 credit to payers of the business and occupation tax. This would result in a property tax reduction of about 4 percent (the state's share of property tax is only 20 percent) and would free 80 percent of the state's businesses from paying any B&O tax at all. The funds left over (an estimated $1 billion a year) would be divided 70-30 between education (both K-12 and colleges, but mostly public schools) and basic health.
So now, what about the arguments pro and con? Critics and defenders say look at who's backing (or opposing) the initiative. Naturally, given a tax matter, there's a lot of naked self-interest involved. Further, opponents of I-1098 say look at the legislature's track record — you can't trust those guys.
Let's stipulate that you can't trust the legislature and that there is a lot of naked self interest among the backers on both sides. (I'll deal with those arguments in a later piece.) But whatever the legislature may or may not do, and whatever some backers and foes of the initiative may or may not stand to gain, let's try to look dispassionately at these questions: If I-1098 works as intended, will it right real wrongs? Will it be good for business or bad?
Both sides in the debate think that if voters understood I-1098 better, those voters would agree with them. And both sides realize that an initiative campaign relies more on the visceral than on the intellectual. As Mark Funk, who is handling media relations for I-1098 opponents, says, it usually boils down to “four sound bites on each side.”
No one denies that the initiative would take 80 percent of the state's businesses off the hook for B&O tax. It would presumably remove one of the many barriers facing a person who wants to start something really small. The question is whether or not the net impact would be positive or negative for statewide economic growth and jobs.
Many small and not-so-small businesses operate as partnerships, limited liability companies, or S corporations, none of which pay federal corporate income tax. The money they earn passes through to the individual owners. I-1098 opponents argue that if you tax business owners on their high personal incomes, you're really taxing their businesses — because you're dealing with the same dollars.
Initiative foes Joe Barer, president of the strategic consulting firm Lake Partners, and Matt McIlwain, a managing director of the Madrona Venture Group, argue that marginal costs drive business decisions, and a new tax will make some business owners think twice about investing or hiring. The tax would also discourage people from moving or staying here to start the next big thing.
“The proposed income tax would penalize small business owners and entrepreneurs . . . and damage our state’s national and global competitiveness for new investment and job creation,” a Washington Research Council >Policy Brief argues. “Because S corporations, LLCs and partnerships . . . have their income passed through to owners’ (shareholders’) individual tax returns, I-1098 imposes a substantial new business tax on many of this state’s small, emerging, and dynamic enterprises. This is certain to discourage entrepreneurial activity in the state.”
The opponents' strategy has been to rally to the defense of small business, deflecting attention from their solicitude for the very wealthy. But what about the rich? Here, the local argument echoes debates over letting the Bush tax cuts for top-end earners expire. At either the state or national level, most of the very few people who would pay a tax on high personal income arguably aren't those who would be building companies or creating jobs.
In an article about the impact of losing the Bush tax cuts, Jackie Calmes reported in The New York Times that “Republicans do not emphasize the impact of extending the tax cuts for wealthy individuals. Rather, they say Mr. Obama is about to spring a big tax increase on many small-business owners who file their taxes as individuals. Analyses from the Joint Committee on Taxation and the Tax Policy Center, a nonpartisan research organization, show that less than 3 percent of filers with small-business income pay at the top two income tax rates, and many of those are doctors and lawyers in partnerships.”
Reagonomic theology aside, evidence doesn't show that at a national level, higher taxes mean lower growth. Paul Krugman wrote in July that “in a rational world, the failure of the economy to do anything special after those [Bush] tax cuts, following a boom period after the Clinton tax hike, would have cast strong doubt on any claims about the favorable impacts of tax cuts on the economy."
On a state level, an income tax by itself doesn't drive away entrepreneurs or investors. And it doesn't keep a state out of the red. Just look at California. The Golden State has both personal and corporate income taxes. It also has Silicon Valley.
1098 opponents say that's just the point. It's true that California has plenty of industry and venture capital, McIlwain acknowledges, but “they have Silicon Valley." The complex of high-tech companies, venture capitalists, and first-rate university research has created a magnet for investors and entrepreneurs. We're trying to build something similar here, but we don't have it yet. In the meantime, lack of a personal income tax is one of our relatively few selling points. Besides, McIlwain says, “talent and capital are flowing out” of states such as California and New Jersey.
Whether or not one is driving off the geese that lay the golden eggs, is it fair to sock a single, rather small group of taxpayers with the full burden of a new tax?
One can also ask (at least at the federal level) whether or not more of the burden should be borne by an even smaller group, and whether or not any American tax system distinguishes adequately between the filthy rich and the merely well off. “The fight on Capitol Hill over whether to extend the Bush tax cuts is about many things,” James Surowiecki wrote in The New Yorker: “deficit reduction, economic stimulus, supply-side ideology. But at its core is a simple question: who counts as rich?” Surowiecki argues that the tax code didn't capture the large and growing gap between the people at the absolute apex of the economic pyramid and everyone else. Recall that between 2002 and 2007, the top 1 percent's share of national income doubled, to 23 percent of the whole, while the top 0.1 percent's share tripled. As a result removing the Bush tax cuts burdens the super-rich no more than it burdens moderately successful professionals. As Surowiecki puts it, “someone making $200,000 a year and someone making $200 million a year pay at similar tax rates. LeBron James and LeBron James’s dentist: same difference.”
Gates says he has some sympathy for the argument against loading a new financial burden exclusively on to a fairly small group of people. But under our current tax system, he says, the alternative is loading it onto another identifiable group, the poor — which he says would be “terrible.”
Up pops another debate: Does Washington's current tax system really stick it to the poor? The Washington, D.C.-based Institute for Taxation and Economic Policy, says Washington has one of the “'terrible ten' most regressive tax systems.” The ITEP explained in a press release last November that “by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.” However, it said, “ten states — Washington, Florida, Tennessee, South Dakota, Texas, Illinois, Michigan, Pennsylvania, Nevada, and Alabama — are particularly regressive. These “Terrible Ten” states ask poor families (those in the bottom 20 percent of the income scale) to pay almost six times as much of their earnings in taxes as do the wealthy. Middle-income families in these states pay up to three-and-a-half times as high a share of their income as the wealthiest families.”
Gates and other 1098 supporters frequently cite the ITEP findings. Opponents suggest that its flawed analytical methods produced flawed results.
“The popular conception that Washington’s tax system is the most regressive in the nation is based on a study with serious flaws that bias the comparison to other states,” the Washington Research Council says. “The system is certainly less regressive than the study makes it appear.” Basically, the Research Council says. “ITEP — the research arm of Citizens for Tax Justice, a labor-backed advocacy group — fails to accurately measure the tax burden. ”
McIlwain and Barer both argue that Washington's tax system looks pretty progressive if you count everything. Barer explains that measuring the impact of Washington's system turns on three key assumptions:
1) For high earners, the question is whether you treat the B&O tax as a corporate income tax or a sales tax. A sales tax is passed on to consumers. An income tax is paid by the owners. The ITEP treated the B&O as a sales tax, Barer argues, while it should be treated as a corporate income tax — which means the business owner with a high income is paying plenty.
2) When the ITEP considered impact on the middle class, it excluded the middle-class elderly. The elderly can get exemptions; for instance, many pay less in property tax. Include the elderly, and the middle class doesn't suffer under Washington's system.
3) In calculating the tax impact on people at the bottom, the ITEP didn't include cash payments government makes to the poor. Barer argues that you should subtract what government gives the poor from what government takes away. If you do that, the poor are not bearing a heavy burden.
“You'd have trouble finding a lot of people who didn't view” the B&O tax primarily as something passed along to consumers, replies Matt Gardner, main author of the ITEP study, “You don't get a lot of quibble from economists on the idea that the B&O tax is primarily a tax on consumption.” However, he concedes, “there's a kernel of truth in the view that it's also a tax on capital income,” because “there's only so much you can push forward to consumers.” In fact, he says, part is shifted to owners, and part is shifted to workers in the form of lower wages. It's all “a question of degree.” Still, Gardner says, “my question right back would be: What fraction of it they say isn't” a consumption tax?
Looking at the middle class, it's “unambiguously true,” Gardner says, that “property tax breaks that are available to seniors are more generous” than those available to anyone else. But the breaks are offered by state and county governments, and they vary widely from place to place. How can you reasonably calculate them? And does it matter? On one hand, Gardner says, seniors do get the tax breaks. On the other, since many of them have homes that have appreciated in value and many have incomes that have declined, they probably pay higher percentages of their income in property tax than any other group. The Minnesota Department of Revenue performs a similar analysis without excluding seniors, he says, and “just looking at it informally, I don't see any difference.”
Gardner says the argument that the poor don't pay much if you subtract all the benefits they receive is familiar — and flawed. “The most obvious difference” between what the poor get from government and what everyone else gets is that poor people receive “certain types of benefits that are really easy to quantify.” But government also gives better-off citizens schools and police protection, urban amenities and roads “Why are you focusing just on the one?” Gardner asks. “The answer is, it's easy to calculate. But that's not a good answer.”
Opponents say 1098 is the wrong tax at the right time. But they don't say what the right tax would be. Ask what the right tax would be, and you're not likely to get an answer. This isn't a campaign for anything, Funk explains. It's a campaign against Initiative 1098. McIlwain notes that a bi-partisan coalition has come together to fight 1098, and he suggests that it could ultimately come up with a better idea. But not yet.
In the meantime, Gates has found an idea he likes just fine. “This is the right tax at the right time,” he laughs.
Comments:
Posted Tue, Aug 24, 5:51 a.m. Inappropriate
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?"
Posted Tue, Aug 24, 6:20 a.m. Inappropriate
"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.
Posted Tue, Aug 24, 8:12 a.m. Inappropriate
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.
Posted Tue, Aug 24, 8:51 a.m. Inappropriate
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.
Posted Tue, Aug 24, 9:11 a.m. Inappropriate
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.
Posted Tue, Aug 24, 9:17 a.m. Inappropriate
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.
Posted Tue, Aug 24, 10:17 a.m. Inappropriate
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.
Posted Tue, Aug 24, 10:26 a.m. Inappropriate
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.
Posted Tue, Aug 24, 10:27 a.m. Inappropriate
@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.
Posted Tue, Aug 24, 11:06 a.m. Inappropriate
Why doesn't the title read "Would a state income tax help the economy--Far from proven."
Posted Tue, Aug 24, 11:29 a.m. Inappropriate
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
Posted Tue, Aug 24, 12:13 p.m. Inappropriate
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.
Posted Tue, Aug 24, 12:22 p.m. Inappropriate
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.
Posted Tue, Aug 24, 12:40 p.m. Inappropriate
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
Posted Tue, Aug 24, 2:20 p.m. Inappropriate
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.
Posted Tue, Aug 24, 3:34 p.m. Inappropriate
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?
Posted Tue, Aug 24, 3:49 p.m. Inappropriate
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.
Posted Tue, Aug 24, 4:36 p.m. Inappropriate
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.
Posted Wed, Aug 25, 5:55 a.m. Inappropriate
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.
Posted Wed, Aug 25, 9:55 a.m. Inappropriate
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.
Posted Wed, Aug 25, 1:02 p.m. Inappropriate
this state needs reals SPENDING reform, Mr. Breneman.
Posted Wed, Aug 25, 5:54 p.m. Inappropriate
I didn't say it didn't.
Posted Thu, Aug 26, 9:31 a.m. Inappropriate
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?
Posted Thu, Sep 2, 1:41 p.m. Inappropriate
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. ^..^
Posted Mon, Sep 6, 7:47 p.m. Inappropriate
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)?