An income tax would make Washington state and local governments more efficient and fair.
I’m about to put a check in the mail to King County to pay the first half of my current property-tax bill. The bill is higher than it was last year, but that doesn’t bother me as much as being reminded how much this state’s tax system stinks.
How much we pay matters, but so does how fair the tax system is and how effectively the money is spent — does it generate the community benefits most of us want?
Washington’s tax system would fail just about anyone’s fairness test because it relies mostly on property and sales taxes, which have inequality baked in.
Sales taxes disproportionately affect lower-income households. Reliance on property taxes means that wealthier areas will be much more able than poorer ones to pay for the services and infrastructure needs of their residents. (The property taxes collected by the county are distributed to cities, counties, schools, the state and other government entities.)
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Every kind of tax has benefits and limitations, which is why most states have a mix that includes an income tax. With an income tax, sales and property taxes don’t have to be so high, so their negative effects are somewhat mitigated.
Poor people across the country pay a higher percentage of their income in state and local taxes than do wealthier people, but Washington is the worst offender in that regard. A report by the nonpartisan Institute on Taxation and Economic Policy found that in our state the 20 percent of households with the lowest income paid 16.8 percent of that income in state and local taxes in 2015. Across the country, low-income households pay 10.9 percent of their income in state and state and local taxes, but the percentage of income paid in taxes falls as income rises.
The top 1 percent in Washington paid 2.4 percent of their income, which is less than half of the national average, 5.4 percent.
There have been efforts to introduce an income tax, but in recent times they’ve never gotten far.
The idea of a Seattle city income tax on high-income households is going to be an issue in this year’s race for mayor. Current Mayor Ed Murray announced in the first mayoral debate last week that he will send a tax proposal to the City Council.
Seattle has become a city heavy with wealthy people. It makes sense to go where the money is as the city scrambles to provide the services its rapid growth demands. And a tax on high-income people might be welcome in a time of vast and growing income inequality, especially since federal government spending is now at risk.
A coalition led by the Seattle Transit Riders Union began calling for a Seattle income tax in February as a way to Trump-proof Seattle in response to the new administration’s budget proposals. The coalition’s proposal is for a 1.5 percent tax on household income above $250,000 a year. Murray didn’t immediately offer any details about his plan, but it’s an open question whether the state would even allow such a tax.
Local governments are always trying to find ways around the current tax system’s revenue limitations. Murray proposed a tax on sugary drinks to raise $16 million a year to spend on education. But that tax targets drinks most popular among low-income consumers, not the diet drinks favored by wealthier residents. Oops. It’s hard to write good tax policy, and harder still to do it while getting around the many shortcomings of Washington’s tax system.
Washington is growing fast, and it’s hard for government services to match that growth.
There is a 1 percent per year cap on the growth of most property tax levies, which makes it difficult to adjust to changing needs.
The sales tax is unstable, rising and falling with economic activity. When hard times demand the most government action, sales taxes are usually at their lowest.
So money even for the basics is hard to come by.
The Legislature is still wrestling with fully funding schools, a problem rooted in our tax structure. The more money a school district’s residents have, the more it can ask those residents to pay to supplement state money.
The communities that most need the boost that education can provide are least able to pay for it.
It’s that kind of unfairness that makes tax time smell bad.