NCPA - National Center for Policy Analysis


June 8, 2010

This fall Washington voters will likely again be asked to pass a state income tax.  Tax proponents want to impose a tax of 5 percent on people with yearly incomes over $200,000 and on couples with incomes over $400,000.  The rate would rise to 9 percent at the $500,000 and $1 million levels.  Supporters have until July 2 to collect 241,153 signatures.  Given well-heeled backers like labor unions and Bill Gates Sr., they will almost certainly make the deadline, says Paul Guppy, Vice President for Research at Washington Policy Center. 

The initiative would reduce the state property tax by 20 percent and increase the business tax credit to $4,800 a year.  In this economy any tax cut is welcome, but the levels proposed here are not significant, says Guppy: 

  • The state makes up about a fourth of property tax bills, so the net reduction would be only 4 percent.
  • Average homeowner savings would be $180 a year or less, or about the cost of a latte a week.
  • Reducing small business taxes would help create jobs, but to do that Olympia could simply lower business and occupation tax rates, without adding an income tax on top. 

Voters have rejected a state income tax four times before, and with good reason, says Guppy: 

  • As a high-tax state, not taxing incomes is one of the few comparative advantages Washington retains.
  • An income tax is a sure way to send businesses and investors elsewhere. 

Tax backers are skeptical that rich people would leave.  New Jersey has an income tax and found that between 2004 and 2008 the household wealth of out-migrants exceeded that of new arrivals by $70 billion.  "If you tax them they will leave," is how their new governor put it.  The Hill newspaper reports, "... studies show top earners -- the 1 percent of taxpayers paying 40 percent of income tax -- are fleeing the Garden State." 

An income tax is unnecessary and unfair since the public already provides $72 billion per two-year budget.   Instead of seeking new ways to tax, lawmakers should set priorities and learn to live within their means, just like the rest of us, says Guppy. 

Source: Paul Guppy, "Washington Doesn't Need an Income Tax," Washington Policy Center, June 7, 2010. 


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