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A few weeks ago I posted some questions and answers on I-1098 that I had put together with some help from the folks at the “Yes on 1098” campaign. (I provided the Q’s, they provided the A’s.)
At that time, WS Blogger maplesyrup asked if I could do the same process with the “Defeat 1098” campaign. So I did, and you will find that information below.
Please note that the questions I have asked the “Defeat 1098” campaign are different from the ones I asked the “Yes on 1098” folks. And many thanks to Mark Funk, Communications Director for “Defeat 1098”, for supplying us with this great information. Please honor the hard work Mark put into answering these questons by keeping your comments polite and thoughtful.
More information from “Defeat 1098” is available at this link: http://www.defeat1098.com/
If you’d like a PDF document containing the Q & A information from this blog post, please go here:
http://roominate.com/blogg/Defeat_1098_Q_and_A.pdf
(Disclosure note: I am in favor of 1098 but am not affiliated with the campaign in any way. I simply want to encourage a vigorous debate on this important issue.)
—David
* * * * * * * * * *
Q: What do you think I-1098’s chance of passing in November is?
A: People simply don’t believe arguments made by pro income tax activists. Respected independent pollster Stu Elway got to the matter’s heart in a recent survey: 70 percent of the voters he polled stated if I-1098 passes “it will only be a matter of time before the income level is lowered and everyone will end up paying a state income tax.” Seventy percent. People don’t trust Olympia with an income tax. And when it comes to the growth of taxes, history suggests they are right.
That said, some of Olympia’s most powerful interest groups – public employee unions like the Service Employees International Union – are prepared to spend millions of dollars to impose an income tax on Washingtonians. From their perspective, it’s a modest investment for a potentially massive payoff. The first year alone the income tax is expected to take nearly $2 billion out of the private sector. And the pay out continues year after year. Hitting the Lottery pales by comparison.
Q: According to the “Yes on 1098” organization, only 3% of Washingtonians—those with incomes of more than $200,000 per year ($400,000 for couples)—will have to pay the tax. Most voters in this state make far less than $200,000. To many of them, this proposal must seem very attractive. Is it hard selling the idea of “Defeat 1098” to these voters? How do you do it?
A: The people’s deep-seeded suspicion of an income tax existed well before pro-income tax activists qualified I-1098 for the ballot, as the independent Elway survey reminds us. That suspicion is also a Yes on 1098 concern: The campaign’s first TV advertisement never mentions the words “income tax,” failing to inform voters what the initiative really is about. The Defeat 1098 effort doesn’t have to sell anything. Fear of the camel’s nose under the tent is very real among voters. They know legislators can change I-1098 after just two years. They know legislators can raid the dedicated funds into which I-1098 puts tax dollars. Pro income tax activists have, perhaps, the more difficult “selling” job: Convincing people that Olympia – which, according to the state budget office’s most recent six-year projection, faces a huge deficit by 2013 – can be trusted with an income tax. It is a high hurdle.
Q: The specter of a lawsuit is raised quite frequently in the debate over I-1098. Is there language in the Washington State Constitution that specifically forbids a tax like the one proposed by I-1098?
A: Former Washington state Supreme Court Justice Phil Talmadge, a Democrat who served West Seattle in the state Senate, had some thoughts on that question recently. Here’s his letter: http://blog.thenewstribune.com/politics/files/2010/08/Talmadge-.pdf
Article VII, Sec 1 of our State Constitution says, “The power of taxation shall never be suspended, surrendered or contracted away. All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word “property” as used herein shall mean and include everything, whether tangible or intangible, subject to ownership.”
If money is property, you can’t tax some money at one rate and some at another (or not at all). You also can’t promise to suspend the power of taxation in an initiative. Our Supreme Court has consistently ruled that taxing “income” is taxing “property.” Every other state with a graduated income tax has a part of their constitution that allows it. Washington and Nevada are the only two states in the country with this kind of broad definition of property. Neither has an income tax.
That said, our Supreme Court is elected by popular vote. There’s no way to predict what they will do. They could allow wages to be taxed but not capital gains or business income, which would cause all sorts of economic distortions. Also, I-1098 is structured as an “excise” tax on the transaction of receiving income. The IRS would have to rule if this is federally deductible, which causes even more uncertainty. Uncertainty is bad for the economy. This is yet another reason we believe voters should vote to defeat 1098.
Q: One West Seattle Blog reader said that, as an owner of an “S-corporation,” he will be taxed on proceeds from his business that is not really disposable income but is actually more like operating capital. Do you have any comments about S-corporations and 1098? (Bonus point for answering this: Does an S-corporation confer some tax advantage to the owner?)
A: Let’s go for the bonus point first: An S corporation does not pay income taxes. The company’s profits show up on Line 17 of the owner’s federal Form 1040, where the owner adds this to salary, capital gains, dividends, rental income, etc and pays taxes personally on his or her total income. A C corporation pays a federal income tax (approximately 35 percent) and then the profits, when they are paid out as dividends, show up on Line 9 of the owner’s 1040, where they are taxed as dividends. So if you own a business and pay out 100 percent of the profits, an S-Corp is taxed at your personal rate (35 percent top rate) while a C-Corp is double taxed (35 percent corporate rate plus 15 personal dividend rate). This is why most businesses with fewer than the limit of 100 private shareholders choose S corporations or similar structures.
This leads us to the crux of your reader’s issue. What happens if you pay out less than 100 percent and leave money in the business to reinvest?
IRS rules force you to pay tax on the entire amount of profit, even if you leave it in the business. So, take a company that leaves $1 million profit in the business at the end of the year to open a new location, hire more people, or buy new equipment. The IRS takes 35 percent of that off the owner’s personal tax return, leaving $650,000 to reinvest. If the owner is above I-1098’s nine percent threshold, the state would then take another $90,000. This reduces the amount available for reinvestment by fourteen percent. That’s a lot.
IRS statistics show that 67 percent of those earning over $200,000 are business owners, just like your reader. They are growing our economy, creating our jobs, giving to our charities and paying our B&O tax.
Q: State revenues have fallen far short of expectations recently, and the budget shortfall for the remainder of FY 2009-2011 is predicted to be $2.6 billion. (Source: http://www.governor.wa.gov/priorities/budget/faq.asp )Your assumption seems to be that all of that can be made up by cutting waste. What makes you so sure? Have you pinpointed where all of that “waste” is?
A: The Defeat 1098 effort is focused on beating one very bad idea – an income tax that falls heavily on the most innovative parts of our state’s economy, pulls almost $2 billion out of the private sector in the first year alone and is so volatile that it should never be used to fund the state’s paramount duty: education. The campaign assumes nothing beyond that. In fact, many people associated with Defeat 1098 are working right now with Governor Christine Gregoire and her Committee on Transforming Washington’s Budget. As Governor Gregoire said when introducing the committee: “We are going to challenge every program in state government with a series of tough questions to ensure we are getting the best value for the most essential functions of state government.” It’s important work that’s being shared all across the state’s political spectrum, with ample opportunity for people to speak.
Q: If it’s true that the state budget can be balanced without raising taxes in the long term, won’t there still be a significant short-term funding crisis while the Legislature figures out how and where to cut?
A: See above answer.
Q: One of the concerns raised by people opposed to I-1098 is that the income threshold of $200,000 could be lowered at will by the state legislature after a two-year waiting period. The “Yes on 1098” campaign responds that any attempt by the legislature to lower the tax threshold unilaterally, without first submitting such a proposal to Washington voters, would amount to “political suicide.”* This seems to follow the reasoning from your own “Defeat 1098” Web site, which points out that, “Recent gubernatorial candidates who have endorsed an income tax have been soundly defeated.” Do you disagree with the claim that it would political suicide for legislators to unilaterally lower the income threshold later on? If so, why?
A: Winston Churchill once observed that in war you die once, in politics many times. As the independent Elway survey notes, 70 percent of the people polled believe an income tax will be extended to everyone if I-1098 passes. So, pro-income tax activists must ask people to trust the politicians in Olympia. The Legislature is able to modify I-1098 after two years. And while lowering the income tax rate might be a tough vote, the reality is that the state budget office predicts more deficits by 2013. Is dropping an income tax on to the middle class a tougher vote than raising our state’s sales tax above 10 percent?
Q: Another issue raised by I-1098 opponents is that tax receipts allotted to an education and health-care trust funds could be raided by the legislature to pay for other things. To back this claim up, the “Defeat 1098” Web site lists examples of cases where it claims the Legislature has “raided ‘dedicated accounts’” in the past. Let’s suppose that legislators could somehow raid the trust fund money created by 1098. Given that, historically, education and health care are two of the Legislature’s top priorities, and given that these two programs are also at the heart of the current budget crisis, why do you think the Legislature would divert funds away from them?
A: There’s no need to “suppose” legislators could raid the 1098 trust fund money. They can and they will. In just the last decade, as the Washington Research Council reports, the Legislature transferred $2.3 billion to the general fund from 74 separate dedicated accounts, including accounts created to secure health and education funding. While most state spending goes for health and education, the categories are broad. The initiative specifically states the money will go into the Education Legacy Trust account and supplement funds for the basic health plan. Both are restricted accounts set aside to fund a very narrow slice of the state’s education and health care obligations.
The programs are also discretionary – the Legislature is not obligated by the constitution or federal matching fund requirements to maintain spending in the two accounts. So, when money gets tight, these funds are among the first to be raided. Both have been tapped previously and they will be again. Money will get tight: Lawmakers already face a budget shortfall next year and the recession is projected to linger for at least another year. The six-year forecast provided by the state budget office is equally bleak.
The money may still go to “education” and “health care.” It’s true, that’s where most of the state budget goes. But experience shows that the education and health care that it funds is much more likely to go to generous health insurance programs for teachers and state employees than for lower class sizes and the basic health plan. Don’t be misled by the restrictive language. The state’s budget history tells a compelling story of repeated manipulation of dedicated funds to prop up the status quo.
Q: Much has been made of Washington’s business climate and how a state income tax would negatively affect it, yet much of the “evidence” in this area is anecdotal. Can you cite any academic research or other scientific evidence that directly links an incremental increase of x in income tax with a loss of y jobs or z businesses?
A: The anecdotal testimony of business owners that have chosen to leave states with an adverse business climate can be extremely persuasive. And, as the question acknowledges, there’s plenty of such anecdotal evidence – including many recent from Oregon, where a recent steeply progressive income tax increase has caused entrepreneurs to depart to more business-friendly states. But we’re not limited to anecdotes.
Let’s look at a survey the Association of Washington Business recently completed with nearly 900 of its members. Employers expect I-1098 would result in significant cuts in hiring and reinvestment in their businesses. Overall, 33 percent plan to decrease hiring and salaries and 47 percent expect to decrease reinvestment.
The greatest impact was on businesses with fewer than 500 employees, which provide 56 percent of Washington jobs. A third of these employers reported that they would slow hiring or cut salaries. These small- and medium-sized businesses also planned to make the largest cuts — reducing hiring by an average of 30 percent and salaries and benefits by about 15 percent. In addition to hiring, these employers were most likely to reduce reinvestment in their business, with 47 percent expecting to make cuts.
The smallest businesses – those with 20 or fewer employees — expect to make significant cutbacks. Twenty-seven percent said they would decrease hiring, 29 percent would decrease salaries and benefits, and 39 percent would decrease reinvestments in their businesses in Washington state if I-1098 passes. For a complete look at the survey, go to: http://tinyurl.com/2wzvrwx
*See my earler Blog post for the “Yes on 1098” campaign’s responses. —D.P.
Topic: Vintage Wood Stove
Franklin Wood Stove for sale – includes 20′ of double walled pipe. Description & photo at:
Has anyone noticed this terrified young dog?
Toby is a young neutered yellow lab/mix that escaped on Friday 9/03/10 in the Admiral District near SW California and 45th Ave SW. He is very scared and is sticking within a pretty small area in the north end of West Seattle. He knows his name but likely will not come if called. He is under the care of Vashon Island Pet Protectors and they are frantically searching for him.
Signs are posted all over West Seattle and he has been spotted on a number of occasions, primarily in the early morning hours before 7 am-ish and in the evenings from 7:30-10:30 pm, when traffic is slower and scary sounds lessen. He has not been responsive to food or people searching for him. He is likely hiding out during the daylight hours when traffic is heavier and there is more activity in the neighborhood. He could be hiding in the greenbelt, park, under a deck, behind a shed or anywhere that is quiet and where he feels safe and unnoticed. He also could be traveling between the North end of West Seattle and the West Seattle ferry dock. He will likely run/hide if approached, so the best thing to do is keep him sighted and contact the folks below immediately.
Important points about Toby:
• Yellow lab mix, male
• Wearing a black nylon buckle-type collar (id tag is for Vashon Island Pet Protectors; micro chipped)
• Sightings of Toby in this area are typically around 7 am-ish and in the evenings from 7:30-10pm
• Locations sighted: the triangle of Sunset Ave SW/46th Ave SW/SW Atlantic St, as well as SW Massachusetts St and Ferry Ave SW. All of the streets around Hamilton Viewpoint Park are likely areas he is in.
• Friendly with other dogs.
If you see Toby, please contact:
Grace at 206-937-2682
Barb, Vashon Island Pet Protectors 206-567-5222
Cindy (206) 910-5102
Picture is on Craiglist posting and signs all over West Seattle: http://seattle.craigslist.org/see/pet/1950887542.html
Topic: Windows 7 – help (Ken?)
I just got a new laptop and its running Windows 7. So far I am not liking it at all! I’m wondering if anyone here has solid experience/knowledge about this OS and can help me figure out if there are problems with it or if it has some annoying differences from XP that I just have to get used to. It does things like suddenly switching to the desktop, cursor randomly jumping around while I’m typing, really slow to open programs, etc. I’m sure some of the issues have to do with settings but … ugh! Or maybe it’s the laptop?
Ken – I can’t find your email address, is this something you might be able to help me with? Also, I have an old laptop I’d like to give you for parts…
I can be reached at add726 at gmail dot com. Thanks in advance!
Topic: Free West Elm Futon
Hi there,
I have a futon that has been gathering dust in my guest room that needs to go to a new home. I got it from West Elm about a year ago (http://www.westelm.com/weimgs/ab/images/wcm/products/201035/0003/img46m.jpg) and it’s been folded as a couch ever since. It has a white slip cover.
It’s yours if you want it and can haul it away! (I own cats and although they don’t go into the guest bedroom much, if you have cat allergies, this futon is probably not for you.)
CSWS has one open slot in their K-2 program for a K or 1st grade girl. They have a ratio of one teacher to seven students with a total of 14. It’s small and personal. http://www.communityschoolwestseattle.org/k2.htm
West Seattle, Washington
16 Wednesday
