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Government shouldn’t compete with the private sector
For years, Washington tax reformers have coveted Oregon’s income tax while their Oregon counterparts believe adopting Washington’s sales tax would plug a gaping hole in their tax system.
And for years, voters in both states have overwhelmingly rejected proposals to adopt the other state’s system.
Oregonians will point to their two-legged tax stool, claiming their property taxes are too high and the income tax doesn’t raise enough money in recessionary times.
Thus, Oregon needs a sales tax.
Meanwhile, in Wash-ington, where businesses pay more than half of the initial state and local taxes, reformers believe adding an income tax can lessen the state’s dependence on high sales taxes and the unfair business and occupation tax, a levy on gross income as opposed to profits.
On and on the arguments go because too often people see the other state’s tax system like an envious homeowner peering over the neighbor’s fence — the grass always looks greener.
The debate even spills over to my home state of Montana, a state with a tax system similar to Oregon, where some have tried time again to impose a sales tax.
Even the talk of adopting a new tax system angers people.
In fact, I distinctly remember my father, a small town mayor with a shrinking tax base, unloading on a fellow Democrat who proposed a sales tax in the state legislature as a way to capture revenues from the state’s expanding tourist trade.
To him, it was just another way for the state to get into his wallet.
The bottom line is, while people hate the tax system they have, they fear change.
There is an inherent distrust about adopting a new tax because they fear it gives elected officials another way to raise their taxes in addition to the taxing authority they already have.
That’s why the latest attempt to adopt an income tax in Washington doesn’t stand much chance even though Sen. Jeanne Kohl-Welles (D-Seattle) wants to tax only “the rich” to partially fill the $9 billion revenue hole.
The bill reportedly would raise about a paltry $50 million a year.
Kohl-Welles’ plan is the Robin Hood approach to taxation.
She would impose a one percent income tax on people making more than $500,000 a year, single heads of household making more than $750,000 and married couples making more than $1 million.
The Seattle lawmaker believes her proposal gets around the 1933 state Supreme Court decision which found the state’s graduated income tax unconstitutional.
The high court ruled that income is property and since the graduated income tax violated the uniformity provision of the state constitution, it needed to be replaced.
In its place, Washington lawmakers patched together the business and occupation tax.
Kohn-Welles says her flat-rate one percent tax would not require a constitutional amendment.
Reimposing a graduated income tax, however, would require an amendment to the state constitution, requiring a two-thirds vote of both legislative houses and a majority approval of the voters — something The Seattle Times referred to as “reaching for fairy dust”.
Even if a 1 percent flat-rate tax were constitutional, it would still require approval by voters, who are the very people expected to pay it.
Voters have rejected income taxes several times before by landslide margins and, in a time of job cuts and economic worry, would almost certainly do so again.
Gov. Chris Gregoire (D), who opposes the Kohl-Welles proposal believes, even if the measure were approved by voters, it would face legal challenges and would not generate a nickel of new revenues for years.
So as much as the average Washington taxpayer hates the current system, it is one they are accustomed to and unlikely to easily abandon.
Besides, voters might recall that the original federal income tax was a “temporary” levy to support the war — the Civil War.
And when it was made permanent in 1913, it applied to only the richest 1 percent of the population.
Times have changed – and so has the income tax. Perhaps that’s what concerns voters about adopting a state income tax that taxes only “the rich” — for now.
Don Brunell is president of the Association of Washington Business.