As your chief financial officer, I can tell you our tax system is failing. It’s grossly unfair to businesses and households, and doesn’t keep up with the economy.
JUST like every parent, I want my children and grandchildren to fully participate in their community and in our state’s economy. We need a strong public education system throughout our state to give every child this opportunity.
We are blessed to be able to raise our families amid amazing natural beauty, where the world’s most creative minds and world-class research universities have spawned companies like Boeing, Microsoft, Starbucks, Amazon, Paccar, Costco and Nordstrom. The success of these and scores of other companies have made our state wealthy and prosperous.
Midway between Beijing and New York — we’re a key transportation hub on the Pacific Rim poised to take greater advantage of the global economy. But our large and small businesses compete in global markets and need a highly trained workforce to keep them here and profitable. We must improve our business climate while significantly investing in education.
Today, we face huge decisions about how to finance our K-12 schools. Local levies fund about $3.5 billion of teacher and staff pay, which the state Supreme Court says must be funded by the state. The figure — $3.5 billion — is roughly 10 percent of the state’s general-fund budget. It’s a big number that demands a serious conversation about a new tax system.
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Standard & Poor’s rates our credit and tells us that “tax revenue growth slows as income inequality rises, especially in sales-tax dependent states” like Washington.
As your chief financial officer, I can tell you our tax system is failing. It’s grossly unfair to businesses and households, and doesn’t keep up with the economy.
Our tax base has been shrinking for decades. Expansion of the service and information economy means an increasingly smaller share of consumer income is spent on items subject to the sales tax, which funds half the state budget. This means tax revenue doesn’t grow as fast as our economy and the demand for public services.
This is why the Legislature shifted so much of the burden for funding education to local school levies. It’s mathematically impossible to sustain a quality education system with our shrinking tax base.
A capital-gains tax, Internet sales tax, carbon tax or a levy swap would not solve the problem. These options could expand our tax base, but they are not big enough to change the trend or shrink over time.
It’s time to create a modern tax system that helps our economy grow and sustains needed investments in education. A new tax system should be:
• Fairer and less regressive
• More competitive for business
• Match demands for public services driven by economic growth
To accomplish that, I propose amending the state constitution to:
• Eliminate the state property tax and cap local school levies to reduce property taxes by 20 percent to 30 percent
• Lower the state sales tax from 6.5 percent to 5.5 percent
• Lower the business-and-occupation tax to cut service-business taxes by one-third and set all others at Boeing’s rate
• Create a flat 5 percent personal income tax dedicated to education
Yes, voters have rejected the income tax before, so we could protect taxpayers by including a constitutional requirement that the Legislature need a 60 percent majority vote in order to change the sales, income or B&O taxes. This is strong medicine, but a reasonable bargain for a tax base that grows with the economy.
This proposal makes our tax system fairer for households and businesses — every business in Washington would get a tax reduction, eliminating or eroding most business-tax breaks. Half of all households would pay lower taxes. Most important, it would secure the education and economic future for our children and their families.
It’s high time we give our children the education they need to compete with the highly trained people who flock here to take the high-tech and high-income jobs we create.
Washington is a beautiful place with a fantastic opportunity to be at the epicenter of the next century’s economic prosperity. But we can’t settle for “adequate” schools when we have the capacity to create the world’s best.
We need to act in 2016. We need to fix our broken education-finance system — now — by creating a sustainable, fair and competitive tax system. Do you really want to have higher property, sales or B&O taxes, and still not solve our education-financing problems?
Waiting would only make our problems harder to solve. Why settle for less? Only then could we truly say we’ve given our children a secure future.
To learn more about my plan: www.tre.wa.gov