Washington State Income Tax Makes Sense
The Washington State Senate Ways and Means Committee held a hearing yesterday on two income tax proposals. Rumor had it that it was a token hearing and that they had no intent of doing anything. That's unfortunate.
When you think about ways you can raise revenue to fund state services like education, health care, environmental protection and transportation, the income tax is the fairest way. If you are not making any money, you pay no tax. Pretty simple.
But property taxes on your home? You have to pay those regardless of how much money you make. Being unemployed is no excuse.
Sales taxes you also have to pay regardless of how much money you have earned. Right now we have the highest sales tax in the country. It makes no difference whether you are earning minimum wage or you are Bill Gates, you pay the same sales tax rate when you buy school supplies for your children and clothes and shoes.
Our heavy reliance on the sales tax and property taxes has earned us the dubious distinction of being labeled as having the most regressive tax system in the country. In a study released in 2003, the national Institute on Taxation and Economic Policy looked at the tax policies of all 50 states and issued a report: Who Pays? A Distributional Analysis of the Tax Systems in All 50 States. The report found that:
# The wealthiest one percent of Washington taxpayers—with average incomes of $1.6 million—pay only 3.3% of their income in Washington state and local taxes. After accounting for tax savings from federal itemized deductions the effective rate becomes just 3.2%.
# Middle-income Washington taxpayers earning between $31,000 and $48,000 pay 11.1% of their income in Washington state and local taxes, almost three and a halftimes the effective rate of the very wealthy.
# But Washington families earning less than $17,000—the poorest fifth of Washington non-elderly taxpayers—pay a whopping 17.6% of their income in state and local taxes, more than five times the rate on the best off.
The study found that Washington’s taxes are so extremely regressive because the state lacks an income tax and instead relies primarily on regressive sales and excise taxes to pay for public.
Washington's tax structure has not changed since this report was issued. What has changed is that the Washington State Legislature has given out a slew of Tax Exemptions to special interests, increasing the tax burden even more on individual taxpayers.
When you think about ways you can raise revenue to fund state services like education, health care, environmental protection and transportation, the income tax is the fairest way. If you are not making any money, you pay no tax. Pretty simple.
But property taxes on your home? You have to pay those regardless of how much money you make. Being unemployed is no excuse.
Sales taxes you also have to pay regardless of how much money you have earned. Right now we have the highest sales tax in the country. It makes no difference whether you are earning minimum wage or you are Bill Gates, you pay the same sales tax rate when you buy school supplies for your children and clothes and shoes.
Our heavy reliance on the sales tax and property taxes has earned us the dubious distinction of being labeled as having the most regressive tax system in the country. In a study released in 2003, the national Institute on Taxation and Economic Policy looked at the tax policies of all 50 states and issued a report: Who Pays? A Distributional Analysis of the Tax Systems in All 50 States. The report found that:
When all Washington taxes are totaled up, the study found that:Washington’s Tax Code: Soak the Poor and Middle Class, Spare the Rich
# The wealthiest one percent of Washington taxpayers—with average incomes of $1.6 million—pay only 3.3% of their income in Washington state and local taxes. After accounting for tax savings from federal itemized deductions the effective rate becomes just 3.2%.
# Middle-income Washington taxpayers earning between $31,000 and $48,000 pay 11.1% of their income in Washington state and local taxes, almost three and a halftimes the effective rate of the very wealthy.
# But Washington families earning less than $17,000—the poorest fifth of Washington non-elderly taxpayers—pay a whopping 17.6% of their income in state and local taxes, more than five times the rate on the best off.
The study found that Washington’s taxes are so extremely regressive because the state lacks an income tax and instead relies primarily on regressive sales and excise taxes to pay for public.
Washington's tax structure has not changed since this report was issued. What has changed is that the Washington State Legislature has given out a slew of Tax Exemptions to special interests, increasing the tax burden even more on individual taxpayers.
As reported by Marilyn Watkins of the Economic Opportunity Institute in a 2006 report entitled Adding Up: New Tax Breaks in Washington 2004-2006:
"In the three legislative sessions from 2004 through 2006, the Washington legislature passed at least 61measures either granting new tax preferences or extending old ones. These new tax breaks will cost the state nearly half a billion dollars in the 2007-09 biennium."Of course any effort to enact an income tax has to be done in conjunction with overall tax reform. Shifting more of the burden to individual taxpayers is not acceptable. This includes a corporate income tax, critical performance audits of tax exemptions, reducing sales taxes and a property tax Homestaed Exemption on one's principal residence.
Posted by Steve Zemke at 3:51 PM | Permanent Link
3 Comments:
The only way that I would support the "State Income Tax" in the state of Washington if they eliminate all sales taxes, gas taxes and property taxes.
Dave P.
Marysville, WA
No, David, that's not a good idea. The point should be to equalize the burden across all the levels of income, so that the total tax that people pay is as close to 20% of the total state and local tax expenses as possible. If we eliminated the sales and property taxes completely, the wealthy 1% would be paying 90% of all taxes, and even though I'm not a member of that 1% I don't think that would be fair.
Take a look at the entire collection of state pages of that report, and you'll see what I mean. In the Washington State report, those bars describing the tax burden should be straight across, using a combination of Income, Sales and Property taxes. We want the system to be fair to everyone, so that nobody can claim that they are being unfairly taxed no matter their income or wealth level. It was that "unfairness" that resulted in the current trend towards regressive tax system that is hurting all of us.
On the troublesome side of a state sales and income tax combination, is the reality faced by Washington State’s retail businesses that are shuttering their doors at an alarming rate, because of hard economic times, but also, their overall inability to compete with Internet purchased goods. Washington State’s sales tax, at around 9%, creates an impossible competitive burden on the retail sector.
In addition to a 9% sales tax, Washington’s residents are also looking at the .95 cents a mile cost of driving their autos to go shopping. In addition to the competitive destroying sales tax, retailers are hit with a vast array of state, county, and city fees and license requirements to keep their doors open. The average savings on items purchased on the Internet can easily reach 35% over local buying. People are always going to get the best value possible with their money, just ask Walmart.
California has had a state income tax and a sales tax since the 1950s, and in 2008, ended up owning 40 billion dollars in a budget deficit, that it cannot repay. A sales and income tax combination is not going to solve the problems of government overspending.
America’s inflation rate of about 4% (true), and is the biggest thief of all; and eventually will destroy both the private and government sectors.
John
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