These are tough times for those who search for hard evidence to support public policy, especially fiscal policy. As anyone who studies economic reports and looks for reliable numbers knows, the challenge is to separate fact from unsubstantiated opinion and, too often, outright fiction.
This has been a long-standing concern of those who follow the civic debate. A comment sometimes attributed to Daniel Patrick Moynihan, sums up the problem: “Everyone is entitled to their own opinions, but they are not entitled to their own facts.” President Obama invoked it when he met with congressional leaders in 2010 to go over the costs of health care reform.
But it isn’t necessary to engage in the national level policy debates to experience the problem. During the 2010 state Initiative 1098 campaign, a Seattle Times editorial made the strong assertion, that “I-1098 also takes away the most important tax-based advantage Washington has in attracting business and jobs.” This supplemented the slippery slope argument: The Legislature could and would extend the initiative’s income tax on high earners to everyone. The job loss claim was echoed in another Times editorial that cited reasons some in Seattle’s biotech opposed I-1098. It quoted the CEO of biotech Dendreon that “having no state income tax is an attractive (recruiting) tool for us.”
As an aside, there are other important factors in addition to tax burden, just one cost of doing business, that dictate a company’s success. Dendreon for example has hit a rough patch and has had to scale back its Seattle footprint. Its drug Provenge, approved for prostate cancer therapy, has had disappointing sales.
The Times again invoked the job loss argument when it recently endorsed Rob McKenna for governor, inferring that Jay Inslee is a closet taxer who might turn to an income tax to fund basic education. According to the Times editorial writers, “Some suggest a state income tax is the answer, but that would remove one of the state’s competitive advantages, and scare away investment in technology companies.” It’s unlikely that the Times newsroom, which fact-checks candidate statements, will do the same for its editorial board. So this shouldn’t be the end of discussion.
Although it’s plausible that some investors would be put off by a state income tax, to what extent? Would potential investors in Washington’s growing technology sector, whether in-state or out-of-state residents, look elsewhere for profitable opportunities? Would companies seeking to locate or expand here instead settle in other states to avoid a corporate income tax? Would highly skilled and compensated scientists choose to take jobs in other states to avoid paying a state personal income tax?
Regardless of how one views a state income tax, these are questions that deserve an answer — to the extent they can be answered with some assurance. The reason is that the income tax may again be on the table for discussion as we — citizens, legislators, and the next governor, whether Inslee or McKenna — confront the need to find several billion in biennial budget funds to meet the state Supreme Court’s K-12 education mandate. And, as some have suggested, to roll back college tuition increases.
There are also other important issues that should be included in any discussion of a revision of the state’s tax system. These are the principles of taxation — stability, equity, economic vitality — in addition to revenue adequacy. The Washington State Tax Structure Study Committee, chaired by William Gates, Sr., addressed these principles and several income tax options in its 2002 report. It also looked into other key elements such as the ease of reporting and costs to administer the tax.
Then there are side benefits to take into account such as federal tax deductibility, which for the sales tax has proven problematic politically. And, just as the federal income tax allows credits for economic losses, so can a state income tax.
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