Republicans and Democrats agree that there must be a paradigm shift in the tax structure of Washington State. Revenue shortfalls, unfunded mandates and budget cuts again mark the end of the 2015 legislative session. There is a systemic flaw in the process of Washington state’s regressive tax revenue acquisition system. Half of all state tax revenue comes from sales tax. The system is not fair, stable or adequate as we see reflected in the latest Budget debate. Still, the electorate is in the dark about sources of tax revenue for Washington.
Every Washington governor of the last half of the twentieth century, except one, wanted to implement a State Income Tax and end the tax debate. The one exception is Chris Gregoire whose priority was the environment. She was opposed in her first campaign by Ron Sims. Mr. Sims proposed elimination of Retail Sales and Use Tax, State Business and Occupation Tax, and Property Tax. He wanted to replace those sources of revenue with a sliding scale income tax between seven and eleven percent.
• Sales Tax is unfair to Low-income families who pay seventeen percent of their disposable income on sales tax.
• We love the jobs and industry that Defense brings to Washington. However, military families use state resources like schools, highways, parks and a plethora of services. Some military spouses are employed off base. They do not pay tax on retail sales while shopping at the PX. Citizens who live near state borders often cross to escape paying the tax. Many people flee from the tax added by shopping online. Out-of-state buyers do not pay the tax. Those are only some of the reasons Sales Tax is not fair to Washington taxpayers.
• The Sales Tax system is not stable. One example of the cause of instability that I am familiar with is the effects of the recent recession. Many middle-class households, struggling with a mortgage payment, used credit cards to help them stay afloat during periods of unemployment and under-employment. Now that the work picture has improved, their disposable income is directed at debt financing instead of new, tax generating purchases. Some people’s credit card debt alone is over $100,000. These phenomena will last for another decade. Meanwhile, the legislature base their projections on gross income. Just one reason why there so many unfunded mandates, and budget shortfalls.
• Another source of instability is related to population growth. In the first legislative session of 2015 lawmakers debating Gov. Inslee’s budget reported an unexpected surge in tax revenue. The rapid population growth we have been experiencing in the Northwest must be taken into consideration. More people mean more burdens on the budget.
Not everyone sees the ease and simplicity of a personal income tax in the State.
• Many big business advocates complain that economic development would suffer if we move to a personal income tax system. Really, there are only nine states with no income tax. Those states with a stable income tax system are doing much better than the State of Washington economically. Would engineers and scientists, or any of the high paying jobs for that matter, move to other states to avoid paying a state income tax? Or do potential émigrés respond more to factors like livability, economic development, the environment, Washington’s education system, or the employment picture and high wages experienced by Washington workers.
Rich States, Poor States, ALEC-Laffer State Economic Competitiveness Index
• Many Washington residents are opposed to the idea of an income tax because of their mistrust of the legislative process. They fear that an income tax will just be another tax added on to the burdensome 9.5% sales tax we pay in King County. It must be clear from the start, we will totally eliminate the unfair tax when we implement a personal income tax in Washington.
It is up to the legislature to find a solution to the dilemma. Leaving it up to the citizens has not worked in the past. Citizen initiatives for state income tax have been viewed with distrust and disdain. There have only been two in the past fifty years.
Washington state voters would approve a state income tax under certain conditions. First and foremost, we must have a total elimination of Retail Sales & Use Tax statewide. We must also have a clear understanding of the total amount we will be taxed. In addition, we need assurance that the new income tax will be fair, stable, and adequate. As voters, the people need to educate themselves on the benefits of a fair, stable, and adequate tax system. Let us make the system work better. We can start by finding a remedy to the systemic flaw in our method of tax revenue acquisition.
Do you agree or disagree with the concept of a Washington State Income Tax. Your comments are welcome at http://www.thebenson.biz.