A state income tax for Washington?
12/03/2002

By ROBERT MAK / KING 5 News and Associated Press

12/3/02

SEATTLE, WA– Just say the words – state income tax – and some people cringe. It’s almost a taboo subject in Washington state, but now, some people are talking about it in public.

For the past year, Bill Gates Sr. has been leading a committee studying the Washington state tax system, and Tuesday morning, the committee released its report. At the top of the list: a recommendation to make some big changes to the tax system.

KING
Bill Gates, Sr., second from left, heads the committee
Supporters of a state income tax say we rely too heavily on sales taxes, which unfairly punishes low-income people who spend a greater percentage of their income.

"Higher-income people tend to save more of their money, they also tend to spend more of their money out-of-state, and more of their money on services,” said Rep. Jim McIntire, D-Seattle.

Poor people pay as much as 16 percent of their income in sales taxes, Gates said, while the rich pay as little as 4 percent. Meanwhile, Washingtonians miss out on the opportunity to deduct state income taxes from their federal tax bill – to the tune of more than $1 billion a year.

Most of the committee's alternatives are variants on a flat income tax, which would fall more equitably on people of differing incomes.

Therefore, if the state creates an income tax, the report suggests lowering the sales tax or even lowering the property tax.

Meanwhile, for businesses the committee recommends creating a new Canadian-style value-added tax or a corporate income tax, replacing the current business and occupation tax, which some industries say is unfair.

Lawmakers, already facing a $2 billion budget hole next year, seemed dubious about the short-term prospects of major tax reform.

"The income tax, we just don't see that happening," said Sen. Dino Rossi, R-Sammamish, the incoming chairman of the Senate Ways and Means Committee. "We have 2 billion of our own problems right now."

Rossi and other Republicans tend to view the imposition of an income tax as a prelude to higher taxes, although the commission's recommendations envision raising the same amount of money through a different system.

Even Democrats generally inclined to favor an income tax seemed uncertain what to do with the committee's proposal.

"What will we do with it? I don't know," said Rep. Jeff Gombosky, D-Spokane, the chairman of the House Finance Committee. "We're going to give it its due consideration." Multimedia

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The report has some other ideas. It calls for a state sales tax on things you buy over the Internet – an idea yet to catch fire in Congress, or a sales tax on services such as haircuts – which right now are not subject to sales tax.

The committee recommends eliminating other taxes, for example, the sales tax you pay on construction labor when you build a house. All these are ideas to make our tax system more fair, but will lawmakers dare to touch any of them?

"The voters, I think, are a little grumpy about taxes these days, and I think that makes this a great opportunity to ask them some questions about what their choices are," said Rep. McIntire.

Supporters of a state income tax say one big advantage is that whatever you pay in a state income tax, you can deduct from your federal income tax if you itemize. That way, the federal government is essentially subsidizing our state taxes – something we can’t take advantage of right now.