Treasurer's funding idea: Something there?

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State Treasurer James McIntire

It’s not often you see folks who hold statewide elective office embrace the third rail of Washington politics, but state Treasurer Jim McIntire, a Democrat, has done that by unveiling a new tax reform package that includes a flat 5 percent income tax. Superintendent of Public Instruction Randy Dorn is supportive of the idea.

A number of editorials that followed suggested at least some people are ready to discuss an income tax again, but few want to pay one.

The Everett Herald laid out why talking about a tax overhaul is a good idea, but in a following readers’ poll, folks rejected the income tax with a 74 percent “no” vote. Say the word and the “talking” is over. Both progressives and conservatives have found problems with the plan.

McIntire’s idea has been attacked by Republicans, and rejected by Democratic Gov. Jay Inslee, whose assurances on resisting tax increases helped his election in 2012. Those assurances have subsequently been eroded by budget realities and the governor has proposed a number of tax and revenue increases — including a tax on carbon emissions.

Inslee will have to face the fallout, if any, in his re-election campaign in 2016. That could be leavened by the fact that even Republicans in the Legislature also seem to acknowledge that new revenues will be needed for some things, such as a higher gas tax for the proposed state transportation plan.

But resisting an income tax is the last line of defense for many Democrats, who realize that the general electorate is still hostile to the idea, whatever the budget reality and whatever the idea of fairness. Washington’s reliance of other taxes (like the sales tax, business & occupation, and property tax) has put us on lists of states with the most regressive tax burdens in the country.

A major reason is that no one really enjoys paying federal income tax, so McIntire might have received a better response if he had proposed the idea long after the April IRS hangover was forgotten. Evidence that the idea is capable of electrocuting those who seize it is a radio campaign against the House’s proposed capital gains tax on the wealthy. The campaign refers to the proposal as the “capital gains income tax,” conflating two separate ideas. The intent is clearly to alarm the public about the nature of the capital gains tax proposal, which if instituted would impact only a tiny percentage of people who makes a lot of money on stock transactions. The only way “income tax” works in Washington is if you want to tar something with it.

Polls have shown that state voters are conceptually intrigued by taxes on the rich, but ultimately suspicious of the slippery-slope effect. That is, what we define as a tax on the rich one day slides down to include you and me. In 2010, state voters handily rejected a chance to approve an income tax on individuals who make $200,000 or more per year (Initiative 1098). It also promised the money would be only used for good: education and health. Still, it was rejected by nearly two-thirds of the voters. That loss seemed to move the issue off the table.

McIntire is stepping up to put it back on. He says our current tax system is “badly broken … unfair, uncompetitive, and unproductive.”

Another worry about the income tax is that is that even when it is offered with offsetting reforms or lowered other taxes, no one really believes the new, lower rates will stay there. Taxes always seem to be inflated with a little helium and have the tendency to float upward.

McIntire would like to see his idea on the ballot as a state constitutional amendment in 2016. He’s putting forth a change that tries to respond to some income tax concerns. It institutes a flat personal income tax for everyone (with a $50,000 exemption for a family of four). It’s not a soak-the-rich scheme. It also dials back state sales, property and B&O taxes. One important, symbolic statement: Most B&O taxpayers would pay the same low rate that Boeing now pays. The fact that small businesses pay higher rates than the aerospace giant is frequently cited as an example of the unfairness of the B&O.

The real concession to conservatives is McIntire’s backing of a requirement for a three-fifths vote in the Legislature to change the income, property or B&O taxes thereafter. In other words it would make it impossible for a simple majority in the Legislature to raise these taxes, which falls in step with proposals by the Legislature’s Republicans and by Tim Eyman’s initiatives.

As some have pointed out, even when the Democrats had super majorities in the Legislature, an income tax didn’t pass, such has been its political toxicity. This proposed check would pour sand and gravel on the slippery slope.

Editorialists are giving McIntire some credit for “getting the conversation started” on comprehensive tax reform. The treasurer’s proposal is not based on an abstract idea of reform but on the real, practical needs of running and funding state government. McIntire, whose job is to manage the state’s money, cash flow and debt, says, “More revenue is needed — it is mathematically impossible to sustain any education system with our state’s shrinking tax base.” I’m not a financial manager, but I know when to listen to one, and most thoughtful people would agree.

But if people are listening, few are yet embracing McIntire’s tax advice. One could argue that’s a sign of a good compromise, but it’s also a description of a non-starter — which it will likely be, as the third rail still carries a high-voltage charge.

That charge won’t dissipate until someone can convince a large majority of Washingtonians that an income tax is, if not the best option, then the least bad option we have for securing our future.

As a numbers guy, McIntire might be right. But he hasn’t sold it yet.


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About the Authors & Contributors

Knute Berger

Knute Berger

Knute “Mossback” Berger is Crosscut's Editor-at-Large.