Why the I-1098 income tax measure is good for the state

It's not perfect, but it's a good start toward rectifying some of the state's terrible tax structure and improving our colleges and schools.

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Ed Lazowska, who holds the Bill and Melinda Gates Chair in Computer Science and Engineering at the University of Washington. (UW)

It's not perfect, but it's a good start toward rectifying some of the state's terrible tax structure and improving our colleges and schools.

Don't believe the smokescreen. Initiative-1098 is simple.  It’s a tax on high-income individuals — to be specific, on income in excess of $400,000 a year for couples, offset by decreases in property tax and business and occupation tax.  The incremental revenue will support education and health care.

To illustrate why I-1098 is right for Washington, I’m going to quote a portion of an email message I received in July, out of the blue, from a 2005 alumnus of Computer Science & Engineering at the University of Washington, where I teach:

Recently, I read (an article in which) you were quoted as saying: “The principal role of great public universities is to provide socioeconomic upward mobility to the citizens of their states.”  For several days after reading that, I couldn’t help but think about my own story and reflect on how blessed I am to have had access to a UW Computer Science & Engineering education.  Five years after graduation, I am now fully appreciating the amazing value of the education I received, and I want to sincerely thank you and all the educators who work to achieve this mission.

I grew up in an immigrant family where my mother worked as a restaurant cook, seamstress, child caretaker, and currently still works as a night shift office janitor.  My father, not able to leverage his Chinese literary education to find a well paying job here, has spent his 17 years in America as a manufacturing worker.  Neither of my parents has ever held a job that paid more than $13/hour, and they will never see an opportunity for promotion into management.

Under these economic circumstances, I did not grow up with music lessons, summer camps, or private SAT tutoring.  Many of my UW friends grew up with parents with business and engineering pedigrees and/or local Microsoft, Boeing resumes.  I’ve often imagined how much I would have enjoyed access to such accrued intellectual capital, early / frequent exposure to technology, and guidance to navigate the world of academia and workplace.  I believe these advantages are consequential and the cumulative effect on a child’s likelihood for success over his/her lifetime cannot be overstated.

Yet, with hard work in school, combined with the privilege to have been accepted into UW Computer Science & Engineering, I was able to compete for one the most rewarding careers this country can offer.  In a span of five short years in the tech industry, I find myself on a solid trajectory into the American middle class …

I am sure I am just one of many students who came from similar socioeconomic backgrounds, so I’m extremely saddened to read that the past decade’s enrollment increases have had to be rolled back.  Every eligible student not admitted is a life and family not significantly changed or improved.

That’s why 1098 matters — why it’s right for Washington.

What about the arguments against?

All national studies, and all common sense, argue that Washington has one of the most regressive tax systems in the nation.  One local self-interested consulting firm has interpreted the Washington data to argue that our system is not regressive — without conducting a comparative analysis of other states.  Who are you going to believe?

The claim that "it will hurt small business” is a conscious attempt to mislead.  It’s every bit as shameless as agribusiness defending its subsidies by talking about “the family farm.”  When you hear “small business” you’re supposed to get tears in your eyes thinking of your neighborhood dry cleaner.  In actuality, though, it’s the LLC or S-Corp returning a half million dollars per year or more per partner.  This same misleading nonsense is promulgated nationally; see a good analysis here.

There are some legitimate reasons for concern about 1098.

Yes, our lack of an income tax is a plus when recruiting employees from out of state.  (But wouldn’t we rather have our own kids educated to fill these jobs?  Additionally, the opponents of 1098 can’t have it both ways — either our current tax system is favorable to high-income individuals and thus an inducement to get them to move here, or our current tax system is no more regressive than that of other states!)

Yes, the legislature should be smarter about how it spends money, and may monkey with 1098 after a few years.  (So, it’s your legislature — elect a different one!)

Yes, at least in the short term there may be an impact on high-end philanthropy, since there is no deduction.  (This will pass, with time.)

Ultimately, my feeling on the revenue side is that Washington needs to move away from its dependence on sales tax (which is demonstrably regressive) and business and occupation tax (which is a tax on gross rather than net, so is not sensitive to the inherent huge margin variations among industries).  I wish that with one stroke of the pen our state could have a decent tax system and decent leadership.  Absent that, we’re stuck either with the status quo, or with incremental steps.

Note, by the way, that our lousy statewide public K-12 system (clearly lousy, by all national measures, although there are pockets of quality) and our lack of bachelors-degree capacity in higher education both are "bad for business" (lack of a quality indigenous workforce, and a major additional expense for employees who want something different for their kids).  Admittedly, money alone won't fix these things, but given that we trail nearly all other states in the amount of our economy that we invest in education, it would be a start.

I heard people say, "I know someone in the technology industry who has already moved from Washington to Nevada in anticipation of the passage of 1098.”  Let me say a word about Nevada.  If someone wants to move from Washington to Nevada, let 'em!  They can have Nevada's K-12, Nevada's higher ed, Nevada's wonderful climate, Nevada's lovely scenery, Nevada's average IQ and education level ...

I heard someone say, "I moved from Canada to Washington because Canadian income taxes were greater than 50 percent."  Let me say a word about Canada, too. I lived in Canada for five years, before moving to Seattle in 1977.  My wife is Canadian, and her entire family lives in the Toronto area.  In 1973, when I was a student operating on about $4,000/year in income, I got hit by a car while riding my bicycle.  Busted my tib, fib, and femur, spent three months in hospital, and four more months in a cast and then in rehab.  Covered.  Ten years ago, my University of Toronto Ph.D. advisor developed prostate cancer.  Covered.  Last year, my wife’s brother, a 65-year-old watercolor artist, had a heart attack.  Covered (including helicopter medevac to Toronto from the little town in which he lives.)

Maybe you would rather pay lower taxes and not have that sort of social safety net, because you personally don't need it.  Not I. I’ll take the social safety net.  I also don’t bitch about paying school taxes despite the fact that my kids didn't use the schools.

I have lived a blessed life.  I have had every advantage.  I’ve also worked hard, but it wouldn’t occur to me to assert that I have not also benefited enormously from the circumstances in which I was lucky enough to be born and raised.  I’m not self-made.  And neither are most people.  My personal view is that those of us who have been blessed have two obligations:  (1) to admit it, and (2) to be willing to do what we can to assist those who have not been blessed.

I-1098 is a start.  It’s right for Washington.


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