Hi, my name is Washington, and I have a revenue problem

Oregon consistently rejects measures that call for an additional sales tax for exactly the reason Washington votes down income tax. Voters in Washington rightly feared that after 2 years the income tax bracket would be lowered to encompass most.

Also the 1/2 penny sales tax wouldn't be much of an issue if cities and counties hadn't already jacked the rate up to 10%.

Hi, my name is Washington, and I have a spending problem.

Will the real Washington, please stand up.

Another thoughtful analysis from Dick Nelson. It got me wondering though about the actual, as opposed to theoretical, regressivity of our tax system.

1. Most of the state's operating budget (more than 85%) is used for education, social services, and prisons. Many of the clients of most of those services are lower-income Washingtonians.

2. The sales tax comprises about half of the tax base supporting the state's operating budget. The next largest revenue source is paid through business taxes and licensing fees, with property taxes ranking last.

3. According to the author, researchers at the University of Washingon found that most purchases by low-income families are not subject to the sales tax. And presumably, most low-income families don't pay business taxes.

So, if low-income individuals and families are the beneficiaries of the lion's share of state programs and they don't contribute much of their income to the tax base, what is the actual regressivity of Washington's tax structure?

It's a puzzle.

What I want to know is how a half cent tax increase, if approved, won't turn into a full cent tax increase when applied to amounts that must be rounded one way or the other. Not saying it can't happen, just want to know how that works.

Good piece. While there is decidedly a difference between "reform BEFORE revenue" and "revenue AND reform".... I think as the session continues, the distinction in these two phrases will blur. I know what the former means, and it isn't particularly inconsistent with the latter, if we're looking at the problems we face honestly and with a sense of shared responsibility and purpose.

Rep Deb Eddy

"In contrast, families in the fourth highest group (incomes from $62,000 to $99,000) pay only 9.5 percent of their income in taxes."

This is a mistake. Families with incomes from $62,000 to $99,000 are the SECOND-highest income group -- not the fourth-highest. They are the fourth-LOWEST income group, if you want to put it that way.

Hi, my name is Washington, and my hundreds of thousands of past and present government employees have a "greed is good" problem. They as a labor force gobble up a huge share of all taxes collected by state, local, and school entities. They pay very little and certainly not a fair share of their health insurance costs and retirement benefits. They know how to max out sick days, Monday holidays, and all 'non-essential' snow days. They constitute many areas of government that should be eliminated and/or privatized. State monopolies of liquor, lottery, printing, and massive feather-bedding at universities and community colleges should be terminated. Hi, my name is Washington and if Governor Scott Walker, R-Wisconsin, is recalled from office this spring he should move to Washington and consider public service here.

The state and local government heads should stop targeting the middle class and lower-middle class with general taxes.

Let’s see them look for new revenue in a different place. The state legislature should enact laws that will end some of its ill-advised delegations of taxation authority to local governments. Some of those are not providing sufficient benefits to nearly enough people. Those revenue streams could be re-purposed to more important state-level needs.

This piece notes FDR stated 'Taxes, after all, are dues that we pay for the privileges of membership in an organized society.' We all can agree the people in Portland and the Twin Cities live in civilized places, and there is no 1.8% sales tax, plus car tab taxes, plus a property tax imposed for their transit (as is done by the government heads here). There was no new regressive taxation for light rail in those peer regions.

What is one sign of a very poorly organized society? What we've got here: needless and heavy regressive taxation.

This is a helpful piece, Dick, thanks. What I wonder is where we would be now on revenue and budget if the measure to place an income tax on the highest earners had passed? What would have been the effects both on the revenues and also on the overall picture of who pays taxes at what rates in this state. The vote against that measure in 2010 was not only a vote against the wealthy paying a higher share but effectively for the poor paying, or continuing to pay, a disproportionately higher share. Tony Robinson

I started reading this article thinking (as the tittle suggests) that I would see something in regard to our revenue and budget shortfall.

Regardless of how we tax. The fudamental issue is that our liabilities are increasing faster than our revenue. Considering most states and countries would be happy to have our wealth generating business, we really need to act on reforms that put us on a sustainable footing.

Let me repeat to be clear: Spending is increasing faster than the states economic growth and associated tax collection. An income tax will not fix this ...

Thank you Crankyoldlady for your comment/question and thank you Crosscut for giving it an editor's pick.

Not to single out Nelson, but media parroting of data mill produced statistical innumeracy flaunts endless warnings, e.g., John Allen Paulos—1988: "When statistics are presented so nakedly... about all we can do is shrug or, if sufficiently intrigued, try to determine the context on our own.... The urge to average can be seductive. Recall the old chestnut about the man who reports, that though his head is in the oven and his feet in the refrigerator, he is really quite comfortable."

Here, the missing context masks abandoned purpose as posted elsewhere on Crosscut: Restore the paramount duty of state government—assure all those of modest means an education that enables self-fulfillment and furthers the democracy as opposed to socialism-for-the-rich, subject only to periodic conning of an ill-informed electorate, contemptuously referred to as the "great beast."

For a start on the Paulos alternative: type at search: "per capita income." From the ample harvest select: http://www.kingcounty.gov/exec/PSB/BenchmarkProgram/Economy/EC02_Income.aspx
Note the definitions and the differences between median household income (1999-2009), per capita personal income (1999-2008), and per capita personal income by race/ethnicity as percent of county average (2009 only).

The state fails to produce the message in meaningful terms not because the 2010 census lacks the necessary information, but rather to avoid frank acknowledgement of political and economic factors, aka to keep the electorate in the dark as to the consequences of infinite growth, e.g., David Orr—1992: "communism has all but collapsed because it could not produce enough, capitalism is failing because it produces too much and shares too little."

Saying Washington is a regressive system is an oversimplification of what is going on. Divide the people into five equal income brackets. Caluculate the benefits they receive minus the income they pay. Look at the middle bracket which should have equal income to benefit. If the middle bracket is paying the same amount as the upper brackets to support the lower two brackets, the system is effectively destroying the middle class.

A huge percentage of taxes goes to education. Is the distribution of children equal across the income range? The cost of raising educated children with health and dental care is so expensive that it is irresponsible for the poor to have large families and put the current percentage of that burden on the state taxpayers. I believe people who make the choice to raise large families need to be economically responsible for that decision. If not, the economic responsibility falls to the taxpayers of Washington, and the sales tax will inevitably need to go up, and then up some more.

@ toughbretts
Why punish the children? What did they do?

A couple of comments regarding Dick Nelson's article.

First, the disparity that we are seeing across incomes with regards to the tax burden is a symptom of the larger economic problem of rising income inequality. It reflects decades of national government economic and tax policies which permit executive pay through stock options, taxing long term capitol gains at an effective rate of 15% rather than at a persons marginal income tax rate, permits tax avoidance through offshore tax shelters, provides income tax deduction for interest on second-homes and luxury homes, etc. All of this has served to increase the incomes within the top 20% of Washington residents while at the same time incomes of the remaining 80% have remained barely grown or remained stagnant.

So it is not that the Washington state tax system is regressive but that the nature of the economy and where income in generated has resulted in a tax system that becomes increasingly regressive over time.

The second point that I'd like to make is that reform is only possible if there is concensus that there is a problem. The debate over last year's I-1098 income tax initiative would indicate that there is by no means any agreement across the two parties that the regressive nature of Washington State's tax structure is a problem.

During the I-1098 debate in the Fall of 2010, I sat in on a discussion between Bill Gates Sr and policy analyst Marilyn Watkins on the proponent side, and ex-Senator Slade Gorton and venture capitalist Matt McIlwain on the opposing side. Watkins and Gates provided identical charts to those Dick Nelson provides here. As one would expect, Gorton and McIlwain staked out positions that were philosophically opposed to the concept of the income tax while raising the specter that an income tax would be a significant disincentive to business startups and job creation.

This was not a surprise. But what was a surprise was the extent that Libertarian language was used to justify the opposition to the income tax. Again, this was not a surprise from a venture capitalist such as McIlwain whose ideas and philosophies were incubated in the insular world of Dartmouth and the Harvard Business school. It was a surprise though to hear former Senator Slade Gorton use similar language though. As one of the States' senior politicians, I had been expecting a more nuanced argument. Income disparity and regressive tax structure is fundamentally not a problem to those who believe that wealth is the reward of individual hard work and that government which targets taxation towards higher incomes is acting under suspect morality.

After hearing Gorton, I've come to the opinion that the State Republican party is likely populated by many like him--at least enough to keep the Republican party from seriously looking at any significant tax reform.

And one should also look to those who opposed I-1098--Boeing, many of the Nordstrom family, Jeff Bezos, Steve Ballmer, Russell Investments, Charles Simonyi, and Paul Allen. Absolutely nothing can get done in this state when one has opposition such as this. The majority of this group has done very well under the policies of the past 30 years that have resulted in the highest degree of income inequality since the Great Depression. And while it may be that it is not in the economic self-interest of this group to support an income tax, I'd expect that than equal reason is that they too question the legitimacy of government action to address the income disparity through pro-active measures.

Several commentators raise important issues that I hope to address in a future analysis of the state's budget growth.

crankyoldlady's comment on the sales tax also is on point. It suggests that the regressivity measure designed by the Institute on Taxation & Economic Policy is based on a household budget that includes expenditures subject to other (and higher) state and local taxes. An example is the state gas tax. In 2007, when the regressivity study numbers were collected, the gas tax was 36 cents per gallon on top of a base gas price of about $2.50. So, with these numbers, the tax rate was 14 %. Other taxes, such as property and utility taxes, may also show rates that exceed 9-10 %. This is something I plan to check.

Dick Nelson notes: "In 2007, when the regressivity study numbers were collected, . . .." Those "regressivity" numbers then do not include a number of local taxes targeting individuals and families (and hitting those with the least disposable income the hardest) that have been imposed since 2007 here. Those recent tax hikes include a .5% Sound Transit sales tax, a Seattle TBD car tab tax, and a King County car tab tax for transit.

Taxing in the name of transit around here is many times higher (in absolute terms) than in any of the peer regions, and far more regressive. There is no good reason for that. The delegations of taxing authority by the state legislature to myriad transit taxing districts have been excessive and now should be curtailed significantly and re-purposed.

Here’s another reason the state and local taxing scheme the government heads here designed may be more regressive than this piece suggests. According to the state OFM, the average household income in this state is $55K, and the average household size is 1.8 persons (http://www.ofm.wa.gov/economy/hhinc/medinc.pdf). Those figures mean the "personal income" figure used in the regressivity calculation ($44K) is much too high. They also mean a much larger percentage of disposable wealth is confiscated from the average family than Dick Nelson’s piece suggests.

The number one target for taxes around here is the working-poor family. That's immoral, and an unsound fiscal policy.

@bkochis
"Why punish the children? What did they do?"

I'm just suggesting that with the staggering cost of educating, feeding, and providing for a child, there needs to be an honest debate on how much of that cost is the responsibility of society and how much belongs to the parent. If even a quarter of that cost is deemed to be the parent's, the people guilty of punishing the children are their parents.

The income tax is not impossible to sell. If someone would propose a constitutional amendment for an income tax that also banned the state (but not counties and cities) from collecting a sales tax, it might get through.

Telling someone in Seattle that their sales tax would drop from 9.5% to 3% could make it acceptable.

Many of us fear once that income tax door is opened, eventually we'll end up like California with high income and sales taxes.

Bravo to crankyoldlady from another cranky old lady.

The high-earner's income tax measure wouldn't have contributed much to state revenue, and people who said (and still say) that an income tax would be OK if we'd have a commensurate amount of sales tax reduction are crazy. If it comes out even, why do it? What we need to do is join the other 43 states which have a non-regressive income tax, but good luck with that; we're Washington and we don't do logic.

What really has done us in is the passage of 1053. That's tied up the Legislature, which of course was its aim. The main reform we need is a revamping of the initiative process, which is now controlled by corporations and individual rich people like Eyman's sponsors. But again, good luck with that.

"Taxing in the name of transit around here is many times higher (in absolute terms) than in any of the peer regions"

True, but a bit misstated. It's not taxing "in the name of transit", it's taxing "for the benefit of downtown", where transit service and projects are heavily focused -- and in the case of Sound Transit's many billions, almost exclusively so.

Deb Eddy observes: "I think as the session continues, the distinction in these two phrases will blur"

Isn't that always the case with the legislature?

Communism is failing because it does not produce enough.

Capitalism is failing because it produces too much and shares too little.

36 cents may be 14% of a $2.50 gallon of gas, but spend your time instead considering exactly how billions invested may produce more tangible value than dollars and cents and taxation schemes.
Wsdot directors are criminally incompetent.

@toughbretts,
To say that parents are theoretically responsible is not to say that children are actually taken care of--they still need help regardless of how their parents act. If you want to prosecute the parents in court, that's one thing, but to deny children what they need is quite another.

Sorry, toughbretts, but you can't wash your hands of responsibility for the innocents in your society--in fact, that's what being a society means. Besides, they will be responsible for your social security, regardless of how much money your parents left you.