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:

Washington’s Tax Code: Soak the Poor and Middle Class, Spare the Rich

When all Washington taxes are totaled up, the study 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.

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.