Washington state inevitably will have an income tax, predicts state Sen. Rosa Franklin, author of so-far unsuccessful legislation to adopt one. She argues that the sales tax, created more than 100 years ago, is not sustainable in a modern economy and unfairly burdens low-income people.
Like it or not, before long, Washington state will have a state income tax.
It’s not going to happen next year, and probably not in the next decade. But it is inevitable, because our state will steadily become unable to function without a structural change in the way we generate revenue.
Our current tax structure was developed more than a century ago for an economy based on agriculture, manufacturing and local commerce. It was appropriate then and for many decades afterward, but over time it has become less and less appropriate — and adequate — for the needs of our modern economy.
Some, like [Seattle Times editorial columnist] Joni Balter, argue theoretically that it ultimately makes little difference whether a state relies or sales or income tax or a combination of both [“The tax is greener on the other side,” Opinion, May 21]. But in the real world, it makes a big difference.
Here in Washington we have an overreliance on sales tax, on which we depend for more than half of our state’s revenue. There are three big problems with this:
• A system that relies on sales tax cannot withstand our modern-day cycle of economic booms and busts. When households cut back on spending, as they do whenever there’s a recession, our revenues dry up and we lack the money to run our state services. An income tax, on the other hand, would provide the steady revenues to maintain state services even in hard times.
• Every day we buy fewer products locally — and our state loses the sales tax revenue that comes from local purchases. With sales from out-of-state Internet and mail-order businesses increasing by an average of 25 percent each year, our state tax base will continue to erode.
• In the modern economy, the sales-tax base does not grow as fast as the overall economy. That means our state will need to continually raise tax rates just to maintain the same level of revenue.
As our tax base keeps shrinking, we will be forced to cut more and more services. The effects of such cuts will soon be apparent, given the size of the cuts we are making to address this year’s historic economic shortfall. Eventually, we will reach a point where our tax base is so compromised — and our infrastructure and level of public services so devastated — that we will have no choice but to adopt a state income tax. But what a price we will have paid to get to that point.
For six years, I have proposed legislation that would update our system of taxation. This legislation would implement the recommendations of the 2003 Gates Commission, which are supported by the League of Women Voters and other nonpartisan advocates who recognize the growing vulnerability of our tax structure.
Some people assume my plan would mean more taxes, but it would actually lower taxes for all but the most wealthy taxpayers. It is a progressive tax because it is based on one’s ability to pay according to income.
In addition to imposing an income tax, my plan would:
• Lower the state sales-tax rate from 6.5 percent to 3.5 percent;
• Phase out the state share of the property tax and cap property tax at 0.64 percent;
• Require that any future change in tax rates be approved by two-thirds of both the Legislature and Washington voters; and
• Provide business-and-occupation tax and public-utilities tax credits.
I will continue to press for this legislation in the next legislative session. As our current economic struggles continue to illustrate the inadequacy of our outmoded tax structure, I expect to build support for a structure more in tune with the needs of our era.
Sen. Rosa Franklin, D-South Tacoma, is vice chair of the Senate Rules and Senate Health & Long-Term Care committees. She also serves on the Senate Financial Institutions, Housing & Insurance, and the Senate Labor, Commerce & Consumer Protection committees.