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Senate Democrats launch income tax proposal to replace state property tax, reduce sales tax
Senate Coalition-Majority Leader Rodney Tom (D-48th District, Bellevue) chastised Democrat members for playing politics and not taking the will of Washingtonians seriously by introducing five fiscal reform bills before the Senate Ways and Means Committee Feb. 14.
One, Senate Bill 5166, would eliminate the state’s portion of the property tax and create an income tax. The legislation would also reduce the state’s retail sales tax from 6.5 percent to 3.5 percent.
While it received a public hearing, comments made by Tom indicated that the legislation would not move forward in the Senate this session.
Legislation sponsor Sen. Maralyn Chase (D-32nd District, Shoreline) said an income tax is the appropriate response to the slowly improving economy and high rate of unemployment.
“Until our people, the workforce, have enough disposable income in their pockets to go out to our brick-and-mortar stores to buy durable goods, we are not going to have economic recovery, given our present tax structure,” Chase said. “I think it’s crucial that people begin to understand that consumption drives our system.”
The state’s revenue relies heavily on property, business and occupation and sales taxes. Forty-three states levy a personal income tax, with the exception of Washington, Nevada, South Dakota, Wyoming, Alaska, Florida and Texas. Only seven of the 43 states have a flat-rate income tax.
Forty-five states collect a sales tax ranging from an average of 2 percent to 10 percent and most states have property taxes, typically administered by local jurisdictions.
While the legislation aims to eliminate the state’s share of property tax, used primarily for education, counties would continue to levy local property taxes to support municipal and county services. Local sales tax is also excluded from the proposed legislation.
Lucinda Young of the Washington Education Association said an income tax would assist the Legislature in meeting the requirements set out by the Washington Supreme Court’s McCleary decision to increase public education funding. The tax would also help address issues outside of the classroom that can potentially hinder student academic achievement. Young explained that when students are burdened with other concerns, such as hunger, poor health or poverty, it’s more difficult for them to concentrate on their education.
“My members know that a child who is sick can’t learn,” Young said. “So we don’t believe that you can decimate the rest of the budget in order to meet this paramount duty.”
An estimated $1.3 billion in revenue would be acquired within this current biennium if an income tax were to be instituted. In the 2015-2017 biennium, $6.6 billion would be expected.
In 2010, $8.8 billion was collected in property taxes and about 54 percent of that revenue is spent on public schools. The state sales tax is responsible for roughly 50 percent of the state’s general fund.
If the bill were to take effect, the state would lose an estimated $1.05 billion for fiscal year 2015 and $2 billion in 2016, according to the legislation’s fiscal note.
While proponents said that the income tax would provide a more reliable source of revenue to the state, opponents said that more jobs would be destroyed and small businesses would take a hit.
“The voters of this state have repeatedly said that they do not want a state income tax,” Tom said, “yet here we go again hearing the same old proposals aimed at taxing our small-business owners out of business and taking every last dime out of the pockets of middle-class families.”
Jason Mercier of the Washington Policy Center claimed that 67,810 private and public sector jobs would be lost by 2016 due to the impact an income tax would have on businesses, according to an economic model created by the Beacon Hill Institute of Suffolk University in Boston.
More than 650 full-time employees would be required to implement and administer the income tax if enacted, costing $125 million by the 2017-2019 biennium. Most of these job positions would be with the Department of Revenue and Board of Tax appeals. Program changes for record keeping would also need to be changed, also contributing to the $125 million price tag.
But John Burbank, the executive director of the Economic Opportunity Institute, said that Washington’s current tax structure just isn’t equitable.
In the current system, low-income families pay 17 percent of their income in taxes, middle-income families pay 10 percent and the top 1 percent contributes about 2.8 percent. Essentially, the poor are paying a greater share of their net earnings. According to the act’s graduated three-rate structure, in which higher earners pay a higher tax rate, families with an income higher than $120,650 would pay $3,574 in taxes plus 6 percent of the excess over $120,650.
Burbank said that the proposed tax structure would increase taxes for millionaires by about $50,000.
“If (the $50,000) remains with a millionaire, its likelihood is that it will be used for investments in Wall Street or a travel to Paris,” Burbank said. “That’s good for the French economy, but it doesn’t do anything for our economy.”
However, Trent England of the Freedom Foundation said that some of the people most heavily impacted from the bill are people who do directly invest in Washington’s economy.
“Contrary to the cartoony view just presented of rich people in our state flying off to Paris, many of the people who would be impacted by a tax like this are small business owners, other business owners, people who do invest in our communities,” England said.
“I think the idea that this somehow affects someone’s pejorative, cartoony image of what a rich person is like is really offensive to many of the residents of our state,” he continued.
During 2010, voters rejected Initiative 1098, which would have imposed an income tax on those in the top 1 percent by a 65 percent margin.
“If all they (Senate Democrats) want to do is introduce one ridiculous tax proposal after another, then I guarantee they are wasting their time,” Tom said. “They either need to get serious and work with us on creating jobs, reforming education and producing a sustainable budget, or they need to get out of the way.”