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Poor get stuck with extra share of the bill in Washington

A new study looks at the big imbalance between the percentages of income that the rich and poor pay in taxes here.

A new study confirms that Washington's poorest pay a bigger percentage of their incomes in taxes than the state's wealthiest residents.

The state's poorest 20 percent pay 9 percent of their personal incomes in state and local taxes, compared to payments of just 2 percent for the richest 20 percent — 4.5 times greater percentage-wise, said Lorrie Brown, an economist with the Washington Office of Financial Management's forecasting division.

People in the 20 percent above the bottom 20 percent pay 2.5 times more percentage-wise of their annual incomes than the wealthiest 20 percent. A major factor in this disparity is that Washington's lower-income citizens pay a significant portion of the state's "sin taxes" such as for liquor and cigarettes, Brown said.

Brown briefed the Washington House's Finance Committee Monday on her division's recent study on how wealth and taxes are distributed among the state's households.

Twenty percent of the state's households owned 80 percent of Washington's wealth, she said. That includes seven billionaires whom Forbes magazine estimated are collectively worth $111 billion. The  top 5 percent owned about half of the state's wealth. That next 20 percent owned 14 percent of Washington's wealth in 2009, the latest year that numbers are available. The majority of the income in the wealthiest segments came from investments . 

By contrast, the poorest 20 percent owned minus 0.6 percent of the state's wealth — which is possible because they have lost assets, Brown said.

Switching to annual income, 20 percent of the people earned 54.8 percent of all of Washington's annual incomes. The poorest 20 percent earned 1.6 percent of the state's annual incomes in 2009.

The OFM report said local property taxes are the biggest tax burden on Washington households, with sales taxes sightly behind. However, the amount of state and local taxes per $1,000 of a person's income has been shrinking since 1997. The 1997 figure was roughly $115 per $1,000 of personal income, while the 2010 figures was roughly $95 in local and state taxes per $1,000 in personal income. Meanwhile, taxes collected per individual Washington resident increased until 2007, when they began to shrink as well.

In the 1990s, state taxes hit an individual taxpayer more than local taxes. Today, that split is somewhat near 50-50.

Washington ranked 42nd out of 50 states in local and state taxes with about 8 percent of the state's gross domestic product collected in taxes.

Also Monday, Kriss Sjoblem, vice president for the business-oriented Washington Research Council, told the committee that businesses paid 56.6 percent of the state and local taxes collected in 2011 for Washington.

Meanwhile, Andrew Nicholas, a senior fiscal analyst for the liberal-leaning Washington State Budget & Policy Center, said capital gains from investments bounce back quickly from recessions. From the dotcom bust of 2001 to the economic peak of 2007, capital gains income grew  21 percent annually, compared to 5 percent yearly growth in retail sales in Washington, he said.

Finance Committee member Rep. Ed Orcutt, R-Kalama, pointed out that Nicholas' capital gains figures do not include calculations for the current recession.

Some Democrats have floated a trial balloon of a new capital gains tax to help deal with the state's budget woes, but Republicans and Democratic Gov. Jay Inslee have declared they won't support any new taxes. 

John Stang covers state government for Crosscut. He can be reached by writing editor@crosscut.com.


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Comments:

Posted Tue, Jan 22, 9:28 a.m. Inappropriate

Washington ranked 42nd out of 50 states in local and state taxes with about 8 percent of the state's gross domestic product collected in taxes.

That seemingly-reasonable taxing level does not come close to representing the very high relative tax burden the vast majority of individuals and families around here experience.

The main reason that “42nd-place” statistic is misleading is because the entities mainly responsible for the relatively-high GDP ranking of this state are multi-national corporations (BA, MSFT, AMZN, SBUX, etc.). They pay no state and local income tax, nor do they collect and remit appreciable amounts of sales tax or licensing taxes here because the vast majority of the purchasers/licensees of their products reside in different states and countries.

There’re some really bad data in that report (the link to that new state OFM report in the story). Near the end of it is a table purporting to show that the average statewide state and local tax hit here is about $4,000. For a number of reasons that’s a lowball figure. One of those reasons is that is a Census Bureau figure and that bureau derives its information by getting individuals to self-report via survey forms, and people have no idea how much state and local tax their households pay.

The actual state/local tax burden figure for a household around here is about $8,000. The derivation of that ugly tax-impact figure is discussed in the three-part posting in this comment thread:

http://crosscut.com/2013/01/07/washington-legislature/112313/legislative-overview-inslee-budget-taxes/

crossrip

Posted Tue, Jan 22, 2:25 p.m. Inappropriate

Hmmmm.....if a major part of the tax disparity problem is that poor people pay a majority of "sin" taxes, the the solution appears to be fairly simple: stop drinking ans smoking away your family's income.. I wish my tax problems were that easy to fix.

"Fair" is always in the eyes of the beholder. In my opinion, the only fair tax is a flat tax: the same percent for everyone, rich or poor, no exemptions and no deductions.

Posted Tue, Jan 22, 5:40 p.m. Inappropriate

alphafemale...you said it all.

cbbear

Posted Sat, Jan 26, 3:15 p.m. Inappropriate

I agree with alphafemale, too. I've often got hit up for bus fare by folks with a latte in one hand, a cell phone in the other, having just finished a pack of cigarettes. Some have many piercings and/or tatoos. It's a question of financial priorities. Having financial education required in primary and secondary schools might prove useful towards this as well as those being inadequately prepared for retirement.

bricsa

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