Don't trust the legislature with your money. That's basically what you hear from opponents of Initiative 1098, which would impose an income tax on individuals earning more than $200,000 a year or couples earning more than $400,000. It's also basically what Tim Eyman says in support of InItiative 1053, which would keep the legislature from raising taxes without 2/3 votes in both houses or a vote of the people. (Not that 1098 foes want to be seen as Eyman allies, much less Eyman clones; Mark Funk, who does media relations for the campaign against 1098, bristles when asked why his side shouldn't be compared to Eyman. “I've spent most of my life in politics fighting Tim Eyman,” he says.)
Opponents suggest that you can't trust I-1098, either, or at least you can't take it at face value. "We hope Washington voters aren't duped by the claim that only the rich will pay this tax,” the Wall Street Journal's editors wrote on Aug. 14. "The revenue from the tax will finance new spending, which will soar and lead to even higher deficits in the next downturn, which will create political pressure to expand the tax to the middle class."
The Seattle Times editorial board agreed. "Bill Gates Sr. — father of the famous one —recently dropped $400,000 into the campaign to convince Washington voters to saddle themselves with a state income tax," the Times informed its readers on Aug. 10. "The cash being poured into the pro-1098 campaign aims to convince you," the Times explained, "if you earn less than $200,000, that you will not pay the tax. You may not, in the first years. But the tax will be expanded. Taxes always are."
“Voters know there are no constitutional safeguards,” Dick Schrock, who directed the state's Department of Trade and Economic Development in the 1980s — and led the successful campaign against a state corporate income tax in 1975 — told Brad Shannon of The Olympian. “They could raise the rates at any time. They could raise the tax base at any time, to apply it to other income groups.”
In other words, I-1098 would let the camel's nose under the tent. The state constitution requires a two-thirds vote of the legislature to change an initiative in the first two years after it passes, but only a simple majority after that. Pass the initiative, and who knows what the legislature will do?
Opponents also claimed the initiative was misleadingly labeled. "To win votes," the Wall Street Journal editors wrote, "the ballot measure resorts to all sorts of trickery." Schrock certainly thought there was trickery involved. While I-1098 proponents were still collecting signatures to qualify the measure for November's election, he went to court to get the ballot title changed. Schrock argued that the words "income tax" should appear right at the top of the initiative petitions. He won. But he says the people circulating petitions just folded the tops down, so prospective signers couldn't see the crucial words.
And then there's the question of who's really behind 1098. No one has a bad word to say about Gates' own motives or sincerity, but 1098 opponents ask meaningfully if you've looked at the list of contributors. The really big money — apart from Gates' own — comes from unions that want to maintain or create public-sector jobs.
On the other side, 1098 backers point to the opposition contributors. Yes, there are more small donations than 1098 itself can claim, but there are also wealthy guys who have a vested interest in not paying taxes on their own high incomes.
Some opponents focus heavily on the initiative's union backing. On Aug. 10, an Evergreen Freedom Foundation blogger noted: "Just last week, SEIU's DC headquarters sent a $200,000 contribution to 'Washingtonians for education, health and tax relief,' the campaign heading up the fight for an income tax. I'm sure I'm not the only one who sees the hilarity in the committee's abuse of the phrase 'tax relief.' "
But you don't have to be a right-wing blogger to notice that big public employee unions have a stake in this game. Ron Lieber wrote recently in The New York Times about coming "class warfare" that would pit people receiving public-employee pensions against taxpayers, who'd be expected to keep funding those pensions come economic hell or high water, even though their own retirement savings are in the toilet. Arguably, public employee unions backing a new revenue stream fit into that context.
That's certainly the lesson that I-1098 opponents draw from Oregon. In January, Oregon voters approved two referendums on taxes enacted by the state legislature last year. One raised personal income taxes on individuals earning more than $125,000 and households earning more than $250,000 a year. The other raised income taxes on corporations. Gates sees the Oregon result as evidence that people in this economy will vote to raise taxes, and specifically will vote to raise them on top earners. With all the anti-tax rhetoric that's currently in the air, he considers it a hopeful sign.
(But he acknowledges that Oregon already had an income tax, and that people seem to be more comfortable with a tax they know than one they don't. Twenty-five years ago, Oregon voters rejected a sales tax by nearly 4-to-1. The group backing the sales tax had argued that it would enable the state to lower its income taxes.)
Opponents of 1098 see the Oregon referendum campaigns as evidence that unions are willing to spend a lot to gain a lot, and that their investment in Oregon paid off handsomely. The unions "leveraged $8 million to get $800 million," Funk says. Here, where the stakes are even higher, they'll presumably be willing to spend even more.
Opponents also point out that 1098 differs significantly from the recommendations that the "Gates Committee" — the Washington State Tax Structure Study Committee, chaired by Gates — gave the legislature in 2002. "If the Legislature chooses to replace major taxes," the group proposed an income tax with a corresponding elimination of the state's share of sales and property taxes. Committee members split on the details. They recommended "both a flat rate and a graduated rate income tax," but noted that "a greater number of Committee members supported a flat rate income tax."
Unlike the Gates Committee's proposal, 1098 wouldn't do away with the sales tax. Opponents argue that the sales tax is the most regressive part of Washington's tax system , so 1098 wouldn't make the system signifcantly less regressive. Arguably, they're crying crocodile tears. But arguably, they're right.
Critics also note that unlike the Gates Committee's proposal, 1098 wouldn't be revenue-neutral. It wouldn't, although revenue neutrality was one of the ground rules that the legislature established, when it formed the committee, rather than the committee members' own choice.
Even though the legislature had asked for the committee's recommendations, lawmakers largely ignored them. And those same lawmakers have largely refused to tackle the issue of tax reform. Despite the feeling among many of the measure's natural supporters that initiatives are a lousy way to discuss and make policy, this would fundamentally change state tax policy in just that way.
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