Just like talking about sex, talking about taxes can put most of us on edge. But it doesn’t need to be that way. As voters in Washington gear up for what might be one of the most progressive, reasonable and fair changes to the state’s tax system, I’d like to offer three questions to ask when evaluating tax measures—including the income tax proposal that’ll likely be on the November ballot. (Sorry, we can’t offer such an easy checklist for every controversial topic!)
This summer in Washington State, signature gatherers are looking for registered voters to sign petitions to put Initiative 1098, a graduated state income tax, on the ballot in November. The campaign appears to have gathered enough signatures to do this. This isn’t the first time a state income tax has been debated in the state. Washington has a long history—more than 70 years—of lively debate about the issue. Since the 1930s, nine state commissions have been appointed to make recommendations for an income tax, and the issue has been voted on by the people or the legislature 8 times, only to fail to get enough votes, be vetoed, or be overturned by the courts.
I wrote 8 years ago in the Seattle Times, about the most recent recommendation for an income tax by the Washington Tax Structure Study Committee, also known as the Gates Committee. Bill Gates Sr. chaired the group and now chairs the effort to pass Initiative 1098.
Former Governor Gary Locke appointed the Gates Committee to review the state’s tax system and make recommendations for improvements. But by the time it rendered its recommendations, politicians in the state had come to consider supporting any kind of income tax as political suicide, in spite of the fact that the state’s Democratic Party—which has dominated the governor’s office and the legislature for the last thirty years—actually included an income tax in its official platform year after year. The Gates report essentially fell on deaf ears even among progressive leaders who considered it smart and financially responsible, but…alas…politically impossible.
But after 8 years on the shelf, the Gates Committee report is back in 2010. And with the economic downturn, and legislators finally realizing the inherent instability of the state’s current—and terribly regressive—tax system. It looks like this time a state income tax has a chance of passing. Now is the right time.
Initiative 1098 proposes a tax on individuals who earn more than $200,000 per year while reducing every property owner’s state property taxes by 20 percent. It also eliminates the state’s regressive business and occupations tax (B and O)—collected on gross receipts, not profit—for 80 percent of businesses in the state. The remaining revenue collected, about $1 billion, will be dedicated to reducing school class size and funding the state’s Basic Health Plan. The tax ends up being about 1 percent for the high-earners in the state, or about $5,000 for a household that earns $500,000 per year.
So, let’s talk about taxes, and review Initiative 1098 using three basic questions which, as a voter, I ask about a tax measure to decide how I’ll vote.
First, is the proposal a sustainable way to generate funds to operate the general functions of government? The Gates committee convened 8 years ago found that Washington’s mix of sales and property taxes create volatility in revenue collections causing “revenue shortfalls in economic downturns, precipitating destabilizing fiscal crises.” That’s what we’re seeing right now as the economy sputters and the state struggles to make ends meet. Adding an income tax to that mix, the committee concluded, would provide more stable revenue needed to fund critical state services.
Second, what behavior does the tax measure promote or discourage? At Sightline we encourage policy that taxes bad stuff (pollution, resource depletion) instead of taxing stuff we want more of (jobs, paychecks, enterprise). In the case of Initiative 1098, the proposed elimination of the Business and Occupation tax on small businesses would promote job creation. The current scheme for B and O requires a shop owner, for example, to pay taxes on how much money she collected in a given period, even if the costs of operating the business—salaries, rent, other expenses—exceed the money in the cash register. In other words, the shop owner has to pay the tax even when she loses money. Getting rid of the B and O will mean small businesses have a better chance to survive a tough economy.
Third, is the tax fair? Initiative 1098 isn’t a “soak the rich” proposition. Rather, it takes a very small amount of money from high earners and puts it into support for health care, arguably one of the highest costs for poor families. If those lower income families can spend their money on other things besides health care, it means they have a chance of getting out of poverty. A high-earners tax is far less regressive than, say, a sales tax increase (too often a knee jerk response by state and local government), which consumes a greater share of the income of poor people than those who are better off.
If Initiative 1098 gains enough signatures and appears on the ballot this fall, the income tax conversation in Washington will begin again in earnest. This time, I hope, the benefits of a more progressive, sustainable, and responsible system for investing in our communities will be clear to voters, no matter how much money they earn. Initiative 1098 is carefully crafted to sustainably and fairly raise revenue for investments in the state’s long term future, ensuring better schools, health care, and jobs in the small business sector. As a voter, I think that Initiative 1098 looks like a sustainable measure worth of support.
A note on the image: The image of King John signing the Magna Carta in 1215 is public domain from Wikipedia Commons. One of the baron’s main complaints when they forced the King to sign Magna Carta, which promised them more power, was a peculiar innovation for revenue generation implemented by the King called an income tax.