How much do you really pay in state and local taxes?

By Drew DeSilver and Cheryl Phillips
Seattle Times staff reporters

Phil and Amy Crocker of Seattle have all the makings of a middle-class lifestyle: a house, a child, a small business. And a $482-a-month state and local tax bill.

Every time they fill their car's fuel tank, buy toy boats for their son's bath or turn on the gas heat, the Crockers pay a tax. When Phil's school-management-software firm signs a new client, it pays tax. And when the couple pay their monthly mortgage, a portion goes to property tax.

But while many Washington residents consider themselves overtaxed, the Crockers don't feel unduly burdened.

"When you look at all the taxes individually, none of them seem ridiculous," Phil Crocker said. "If I can't criticize the pieces, I can't criticize the whole."

The Seattle Times analyzed the Crockers' finances, and those of two other households, for a month to learn how Washington's tax system hits people at the pocketbook level. Each household saved receipts and utility bills, and where appropriate shared their property-tax bills and business-tax returns. Using that information, we calculated how much they paid in sales, property, gas and other taxes and fees.

Johnny Grady Jr., a single UW graduate student, paid $106.78 during the month; Gary Proctor, a retired dentist, and his wife, Joan, paid $1,334.92.

To complement that personal perspective, we panned out to assess the tax system as a whole. We learned where taxes have risen and fallen the most; ranked Washington against the rest of the country; measured how much the state's total tax burden has changed over time; and analyzed the underlying trends behind state and local taxes and fees.

Here's some of what we found:

State tax collections have more than quadrupled over the past 20 years, rising an average 7.35 percent a year. They've just about doubled when adjusted for inflation.

When you take the state's growing population into account, the increase in collections has averaged only 5.5 percent a year. And factored against rising incomes, taxes have barely budged.

The higher your income, the less of it you pay in state and local taxes. The lowest-income people pay more than 16 percent, according to one study; the highest, less than 5 percent.

The overlapping of dozens of property-tax districts in King County has created a blizzard of rate combinations 265 at last count.

State and local governments rely on sales taxes more than ever, but the tax applies to less and less of what people buy resulting in a loss to public agencies of hundreds of millions of dollars each year.

Government fees provide nearly one-third of all revenues for Washington's cities, counties, ports and transit agencies.

A systematic look at taxes is particularly timely.

State lawmakers, who convene in January, must close an estimated $2 billion gap between anticipated revenues and the cost of maintaining current services. Some legislative leaders have said the problem can't be fixed without raising taxes.

Cities, counties, school districts and other local governments are grappling with their own budget problems and closing parks, pools and libraries in response. Many local officials, including King County Executive Ron Sims, blame their troubles on what they call an antiquated tax structure.

Two weeks ago, voters turned down $7.8 billion in transportation-related tax increases that would have funded major road and mass-transit projects around the state. Legislators now have to decide what, if any, replacement plan to offer; Puget Sound-area officials also must piece together a regional transportation plan and figure out a politically palatable way to pay for it.

Voters also continued their tradition of limiting taxes when they approved Initiative 776, which repealed the last vestiges of the motor-vehicle excise tax a tax that as recently as 1999 was the state's fourth-largest revenue source. They may get another chance next year: Tax activist Tim Eyman has filed an initiative to raise the supermajority required for raising taxes from two-thirds to 75 percent.

Against this background, a committee of legislators, lawyers and economists has been studying the state's tax structure to figure out how it might work better. The committee's final report, due in a few weeks, is expected to recommend a state income tax an option that in the past has smacked up against constitutional and electoral brick walls along with other changes such as regularly reviewing special-interest tax breaks.

But any proposals to overhaul taxes will have to navigate a split Legislature. Republicans appear set to control the Senate by one vote, while Democrats have a slightly firmer hold on the House.

Anyone trying to craft a better tax structure will have to bridge philosophical as well as political divides. The fairest tax economically may also be the most complicated for actual taxpayers. Is it more important that taxes capture economic booms or remain stable during busts? If taxes should be visible to those who pay them, why are sales taxes which most of us never think about so widely accepted?

Resolving those questions, in a way that satisfies most Washingtonians, is sure to be one of the biggest challenges of the next several years.

A breakdown of taxes can be found at Who pays the most and least and why .


Related story:

Reporters demystify the puzzle of state, local taxes for readers

Seattle Times

Washington's tax system hasn't changed much since the Great Depression, but who among us has a clue how it works? Polls show most of us believe it's unfair, but do we really know how or why?
Today's special report on state taxes is the most comprehensive look The Seattle Times has ever taken at a system that affects all of us. Reporters Drew DeSilver and Cheryl Phillips provide a primer for how the system works and where the money goes.

The purpose of the report isn't to tell you how you ought to feel about taxes. "The whole idea," says Phillips, "was to avoid any judgments but to present the information in as neutral a fashion as possible."

DeSilver adds, "Our main purpose going into this wasn't to try to push any particular policy prescription, but to give people the information and the analytical framework to let them come to their own conclusions.

"We started out with the presumption that most people ourselves very much included look at taxes in isolation: Do I like this or that ballot measure, and how will it affect me personally?

"There's nothing wrong with that as far as it goes, but one thing we've learned is that the different parts of the tax system are so interconnected and their inner workings are so obscure to most people that to truly understand it we had to step back and look at the whole thing," he says.

He began working on the report about six months ago and quickly realized there was no one source for a comprehensive understanding. The system is too big, with data maintained by countless governmental units.

In June, The Times hired Phillips, a specialist in computer-assisted reporting. She built a database that would help make sense of the facts and figures DeSilver was amassing.

"I worked with a massive database that tracks government revenue to local governments that's cities, counties, ports and transit authorities. The database covered the last decade and we analyzed the trends over time with a variety of taxes and other revenues, as well as looked at the share of the pie of different revenues," Phillips explains.

"Then we talked to local and state officials about the trends that we found and what they mean. For example, this analysis highlighted the fact that non-tax revenues fees and permits make up a third of the money flowing into local government coffers."

Phillips said the big surprise for her was just how complex the system is. "At one point in the reporting, I realized that revenues from just one tax were split more than 50 different ways. Trying to track what happens with tax money is a daunting task."

The next challenge was how to present such a complicated story.

"Let's face it," says DeSilver, "this could easily have turned into a textbook on public finance, and there aren't many of us who'd care to curl up on a Sunday morning with a lengthy discussion of value-added taxes or nominal versus economic tax incidence.

"We wanted to look at the big picture without losing sight of the people who actually pay the taxes. We also wanted to illustrate how the taxes people pay both in terms of which taxes and how much varies dramatically from person to person depending on life circumstances."

DeSilver and editor Michele Matassa Flores decided to tell the story through three tax-paying families. They picked the households from several hundred people who have volunteered to help The Times with personal-finance coverage by sharing some of their financial and investment information and providing feedback on particular stories.

"We looked for families that would represent a range of income levels and lifestyles, and would cover the gamut of taxes," says Matassa Flores.

Each household saved all their receipts and utility bills for a month. The information was analyzed to see which levels of government received the taxes on their purchases, and how much of what they spent was taxed.

"We used property-tax statements and public records to figure out where their property taxes went and how they've changed over the past few years," says DeSilver.

"On the big-picture side, we used a lot of the research that's been done for the Tax Structure Study Committee chaired by Bill Gates Sr., and attended nearly all of that committee's public sessions. The state Revenue Department compiles a vast amount of data on tax collections and rates around the state that we gathered and analyzed in our own spreadsheets. And, of course, we've talked to dozens of people who've spent years looking at the tax system, from all points along the political spectrum."

Today's report is just the beginning. DeSilver says, "We have stories lined up that examine each of the major taxes sales, property, B&O in detail.

"We're also going to look at fees, which often are hard to distinguish from taxes and provide a considerable amount of revenue to cities and counties, and get at trends in state and federal grants to local governments," he adds.

So, to death and taxes, you can add the certainty that The Times will continue to probe this topic.


Adding up your tax bill - In a recent Seattle Times poll, nearly two-thirds of people called the state's tax system unfair, and 41 percent said taxes took "a lot more" of their income than 10 or 15 years ago. How true that is depends largely on how you look at the numbers. So who really pays the taxes and how much do they pay? Here are answers to some basic tax questions.





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