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August 6, 2010 at 10:25 pm #595868
DPMemberWSB Readers:
Greetings. David Preston here.
Some time ago, I posted a short piece on I-1098, an initiative that will be on the November ballot asking voters if they want to implement an income tax on wealthier Washingtonians.
There was much interest in the topic. Good questions were raised and thoughtful arguments were put forward on both sides. Based on that, I decided to put together some of the concerns WSB readers had raised about I-1098, add a few of my own, and ask I-1098’s sponsors for an official reply.
(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.)
Below are my questions, along with the I-1098 staff’s responses. I hope you will find their answers as helpful as I have.
Many thanks to Yes on 1098 staffers Jake Faleschini and Sandeep Kaushik for their time and effort in getting this information to me.
More information on I-1098 is available at this link:
For a PDF document containing this information, go here:
http://roominate.com/blogg/1098_Q_and_A.pdf
* * * * * * * * * * * * * * * * * * * * * *
Q: What do you think I-1098’s chance of passing in November is?
A: This is going to be a hard-fought battle, and we expect it to be close. The opposition, which is being funded by a small group of very wealthy CEOs, venture capitalists, and big developers, has pledged to spend millions to stop 1098 because they want to preserve the massive tax advantages that they get under the current system. But we are confident that Washington’s voters will see through the misinformation. When they learn what I-1098 actually does — cut taxes for the middle class and small businesses while requiring the very wealthy to pay their fair share so we can restore the deep cuts to education and health care — they like the idea. Given the recent cuts to education and health care services in Washington State, voters realize that we can no longer afford to give the richest Washingtonians a pass on paying their fair share of taxes.
Q: How many Washingtonians will have to start paying income taxes if 1098 passes? (I’m not looking for a percentage figure here; I’m looking for a head count.)
A: The limited income tax provision under 1098 will affect less than 3% of Washingtonians: about 75,000 households out of more than 2.5 million in the state. However, many of those households would also receive tax cuts from the reduction in their property and B&O taxes (although the exact number is difficult to quantify). Thus, the number of households that will pay more tax after initiative 1098 is passed would be significantly fewer than 75,000. And those are the households that are benefitting from our current unfair system, where the wealthy only pay 2.6 percent of their income in state and local taxes while middle class families pay four times that rate.
Q: How much do you estimate it will cost to collect and administer the new tax? How many new government positions will need to be created to do it? Will those expenses come directly out of the revenue raised?
A: The income tax on the wealthy will be simple to administer. That is because it will be based directly off of adjusted gross income on the federal tax form. Only those who owe any tax will have to file a state tax form, and it will be simple and take only a few minutes to fill out. Section 902 of Initiative 1098 states: “PERSONS REQUIRED TO FILE RETURNS. (1) Only taxpayers with joint income in excess of $400,000 ($200,000 for individuals) are required to file a tax return with the department. The department must utilize such taxpayer’s federal tax returns as a primary tool for obtaining taxpayers’ information. The department must prescribe a simple supplement of no more than two pages for computing the excise tax owed under this chapter.” Given this simple system, administrative costs will be minimal.
Q: A state income tax has been challenged (and beaten) in our courts before. Do you anticipate any specific Constitutional challenges to I-1098 if it passes? (If so, what might they be based on?)
A: After consulting with some of the leading tax and constitutional law experts in the state, we are confident that I-1098 is constitutional. There is a state Supreme Court decision from the 1930s that declared an income tax unconstitutional, but all of the precedents that led to that decision have been overturned in subsequent decades. Other states have faced the exact same question and their courts have all decided that an income tax IS constitutional. We expect a challenge if I-1098 passes but we believe the courts will rule in our favor.
Q: I-1098 imposes an arbitrary income threshold of $200,000 ($400,000 for couples.) How did you come up with those numbers?
A: We studied our current tax system to understand who pays our current tax burden. We found that those who make above those thresholds are paying a far lower percentage of their income in state and local taxes than working and middle class households. In fact, Washington State ranks dead last — 50th out of the 50 states — in basic tax fairness, with the middle class paying four times the tax rate of the wealthy. I-1098 will help to restore some fairness to the system.
Q: Under the proposed new tax structure, what would be the difference, in dollars of tax owed, between a single person with a taxable income of $199,999 and another single person with an income of exactly $200,000?
A: There would be no difference, in dollars of tax owed, between a single person with a taxable income of $199,999 and another single person with a taxable income of exactly $200,000. Neither would owe ANY income tax because the new proposed income tax would only apply to the taxable income a single person makes ABOVE $200,000.
For example, a single person making an ADJUSTED gross income of $200,100 would pay five dollars in income tax and a person making $200,200 would pay ten dollars in income tax because the first $200,000 is exempt from the income tax. Furthermore, a single person making $200,200 would also likely see a tax reduction from the initiative’s reduction of the Property and B&O taxes and so would still likely pay less in taxes overall.
Q: Historically, one reason Washingtonians have been against a state income tax is that Washington State already has one of the steepest sales taxes in the nation. The sales tax is the most regressive tax there is, hitting the poor the hardest. Why does I-1098 reduce property taxes and the B & O tax, instead of reducing the sales tax?
A: I-1098 is the best initiative citizens have put forward in over seven decades to improve Washington’s regressive and outdated tax system. It is not going to solve every problem with our tax code, but it is a huge step in the right direction.
[You are] correct that the Sales Tax is regressive, but so are property taxes. And many economists actually list the B&O tax as the most regressive tax because it is nearly always passed on to consumers (like a sales tax) and can tax the same object or service multiple times. Thus, the effect of a B&O tax is often that of a sales tax on steroids. Eliminating the B&O tax for small businesses makes sense because it will stimulate job creation and help put Washingtonians back to work. Thus, the citizens who put the initiative forward felt that eliminating the B&O tax was a more pressing concern in the short run.
The citizens who proposed this initiative also spent a lot of time listening to the concerns of average Washington citizens, who felt that property taxes caused them the most hardship. Particularly at a time when so many people are in danger of losing their homes, we wanted to ensure that this Initiative alleviates some of that pressure.
Q: When Washington voters were asked to vote on a state lottery several years ago, they were told by lottery supporters that the money raised would be dedicated to paying for education, but in the end, lottery money was comingled with the general fund and we ended up cutting education funding anyway. I-1098 sponsors say this kind of comingling won’t happen with money raised by a state income tax, but is there any provision in Washington state law that expressly forbids the Legislature from eventually comingling the trust fund money with the general fund if it wants to do that?
A: When writing 1098, we were very aware of previous actions by the legislature. That is why we built such strict transparency and accountability measures into the initiative. By law, revenues raised by 1098 will not go to the general fund but instead will be directed to a special trust fund that will be dedicated to funding education and health care. The fund will pay for priorities like reducing class sizes, helping students afford a college education at community and four-year colleges and universities, and pay for the voter-approved Basic Health Plan.
Q: Will the money in the trust fund fully restore recent cuts to education and health? If not, what percentage will it restore?
A: Initiative 1098 will generate enough resources to restore ALL of the money that was recently cut from the Education Legacy Trust Fund for K-12 Education. It will also restore a significant amount of the funding for the recent cuts to health care and higher education.
Q: Some people see I-1098 as creating a potential cash cow for the Legislature. They worry that, two years from now, politicians in Olympia could gradually begin lowering the taxable income threshold set by I-1098. Beyond whatever language you have included in the text of I-1098 is there language anywhere in Washington state law that requires a public vote on new taxes?
A: Section 1004 of Initiative 1098 states: “The excise tax rates in section 501 of this act may not be increased for any income level without a majority vote of the legislature and submission of the changes to the people for approval.” If the legislature tried to change this language, they would be committing political suicide. And if they did it anyway, it is all but certain that another initiative will be filed to make sure that the public has the final say on any change to the income tax.
Q: When will I-1098 take effect if passed?
A: If passed, both the tax cuts and the limited income tax provided for in Initiative 1098 will take effect in fiscal year 2012.
August 6, 2010 at 11:29 pm #700800
JulieMemberI thought this had some useful information, too. It is from a supporting position, but is specifically only attacking dishonest opposition, not honest opposition:
August 7, 2010 at 7:43 pm #700801
WAPoliticoMemberFaleschini’s response to the question about the chances of I-1098 passing:
“The opposition, which is being funded by a small group of very wealthy CEOs, venture capitalists, and big developers…”
Pretty incredible to attack people like John Nordstrom, Howard Behar, Jon Runstad, Tom Alberg, Tim Boyle, and the many other contributors to the opposition, when they’ve created a massive amount of jobs in this state.
And btw, the last time I checked on the PDC’s website, the opposition had more small donors than the proponents.
I also had to laugh at Faleschini’s response to concerns that the State Legislature may expand the tax downward to everyone:
“And if they did it anyway, it is all but certain that another initiative will be filed to make sure that the public has the final say on any change to the income tax.”
In other words, let’s pass this state income tax because, hey, we can always have another initiative if the legislature expands it downward.
Question for Faleschini: What side of the debate will you be on when that time comes?
August 7, 2010 at 8:08 pm #700802
CarsonParticipantGosh, I can only hope they expand this downward. Imagine a tax system that is more fair and equitable to all, and pro-business too boot!! Seems like a no-brainer to me. Yea on 1098, yea for opening the door!!
August 7, 2010 at 10:40 pm #700803
c@lbobMemberCreate massive amount of jobs? Only because they create massive amounts of profits from which they have benefited entirely too extravagantly for the past 30 years.
Between 1980 and 2006 the richest 1% of America tripled their after-tax percentage of the nation’s total income, while the bottom 90% have seen their share drop over 20%. Between 2002 and 2006, it was even worse. Three quarters of all economic growth was captured by the top 1%.
Must we continue to reward economic elites for making us serfs in their duchies? Requiring them to contribute some of the obscene wealth they have amassed is not only logical it is a moral imparitive.
August 7, 2010 at 11:31 pm #700804
WAPoliticoMemberC@lbob,
They made massive profits because they put forth a product that people wanted to buy.
It’s called capitalism. You create something people want, they buy it, you make money. Then, you put that money back into the economy by buying things. In turn, the economy grows and expands.
From the AP this week:
“Economists say overall consumer spending has slowed mainly because the richest 5 percent of Americans — those earning at least $207,000 — are buying less. They account for about 14 percent of total spending. Think of the wealthy as the main engine of the economy: When they buy more, the economy hums. When they cut back, it sputters.”
http://news.yahoo.com/s/ap/20100801/ap_on_bi_ge/us_wealthy_cut_back
Yeah, probably not the right time for a high-earners income tax in WA…
August 7, 2010 at 11:55 pm #700805
CarsonParticipantThe numbers the AP has are total bunk and defy any logic in Wa State. The wealthy, those earning over 250k a year pay less as a % of income then those earning less that 100k. Do the wealthy buy more taxable items? Perhaps, but only marginally so. What they do with their money, travel, save, invest is not taxed locally. Its time they pay at a minimum, what the rest of us pay.
August 8, 2010 at 12:27 am #700806
WAPoliticoMemberAnd how exactly are the AP’s numbers “total bunk”?
Because they make it hard to justify a state income tax in WA, or…?
August 8, 2010 at 12:31 am #700807
WAPoliticoMemberOh, btw:
“Nearly half of US households escape fed income tax” – Yahoo! Finance
http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0&.v=1
“The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.”
Talk about “fair share”…
August 8, 2010 at 12:49 am #700808
CarsonParticipantTotal BS. Please take your crap and shove it. Unless you have actual WA state stats, AP, Yahoo, mean nothing to us. Our current system is unfair and anti business. We need a state income tax, we need lower sales tax and for those business owners that actually hire people, lower business taxes. But by all means, keep giving us links that have NOTHING to do with local matters. Duh….
August 8, 2010 at 12:59 am #700809
CarsonParticipantPlease, list for us all the small, medium and large business owners that make more than 200k.
The Nordstoms, Gates, Schultz’s, etc don’t count, they are not business owners, all those companies are public, the taxes they pay, or not, should have zero influence on hiring.
So, again, please, who that makes over 200k (400 if they are married) has said they will hire less as a result of a potential tax. There might be many that say they will hire less, because they hate any taxes, but who among them actually will have to pay an income tax?
I will wait for that list…
August 8, 2010 at 1:05 am #700810
WAPoliticoMemberYou DO realize that I-1098 doesn’t lower the sales tax, right?
And how is national news about the wealthy not relevant to our state? You think our wealthy are different from the wealthy in the 49 other states? That they somehow act differently when it comes to spending/saving? That their federal income taxes don’t count toward the overall total?
And btw, Carson. Where are you getting your numbers showing the rich in WA don’t pay enough? The EOI? ITEP?
August 8, 2010 at 1:40 am #700811
WAPoliticoMember“So, again, please, who that makes over 200k (400 if they are married) has said they will hire less as a result of a potential tax.”
Carson, you honestly don’t believe that businesses will abstain from hiring new workers due to having to pay a state income tax?
The ironic thing is that among Washingtonians aged 18-29, 51% support this income tax (PPP poll). What they fail to realize is that if I-1098 passes, it’s THEM who won’t be hired by businesses that are forced to freeze hiring.
August 8, 2010 at 2:13 am #700812
c@lbobMemberWAPol,
The AP numbers defy logic, your logic at least, because the taxes on the rich are as low as they have been in 80 years – what is keeping these engines of capitalism from spending now?
It’s called greed. They have theirs and they are keeping it. Trickle down was, is and will always be total bunk. The way you get the A-holes to invest in the USA is to penalize them if they don’t, firstly by a confiscatory tax on wealth that isn’t fueling your beloved capitalism. Another tax to put back to historic levels is the inheritance tax.
That Yahoo number you quote ignores employment taxes: SS, Medicare, unemployment, etc. The rich consider these some sort of welfare, mainly because they don’t need them. What they do need is to benefit from the relatively high taxes we working stiffs have to pay on our incomes, and believe me, I am not one who escapes federal income tax.
Give it a rest, Pol, your welfare for the wealthy pitch is a bust.
Are you poor, forlorn, and hungry
Are there lots of things you lack
Is your life made up of misery
Then dump the bosses off your back
Don’t wait for them to trickle it to you, boys, grab their balls and squeeze.
August 8, 2010 at 2:43 am #700813
CarsonParticipantAgain, please, the list, if any, of business owners that will hire fewer employees, or fire more, as a result of having to pay a State Income Tax (please only site business owners that make over 200k ).
We are waiting for that list (but know it will never come)
……
August 8, 2010 at 3:02 am #700814
CarsonParticipantA hint. People that make over 200K and hire illegals to cook and garden, don’t count…
……still waiting.
August 8, 2010 at 3:55 am #700815
JanSParticipantCarson, I am always suspect of someone who answers with a question when you ask them one. To me, it’s a sign that they really have no idea what they’re talking about…they are simply regurgitating what they’ve heard. And…Yahoo Financial? Are we serious here? There are much more credible sites than anything Yahoo has to offer, IMO.
August 8, 2010 at 4:14 am #700816
CarsonParticipantAugust 8, 2010 at 6:24 am #700817
DPMemberWAPolitico: You’ve got guts. I admire that in a politico.
You are now officially in my will. (Would you like the Dell laptop that has a punctured screen but still works, or would you prefer the Mamie Eisenhower commemorative plate set?)
As for the rest o’ youse lugs, I’ve got a question. I’m not saying that this would taint your studied opinions on the matter or anything, but is there anyone here who will actually have to pay any tax under I-1098?
I know I won’t. And frankly . . . I’m loving it. It’s the one time I’ve ever been really glad I was poor.
—That and the time this scruffy guy at the bottom of the off-ramp on 145th asked me if I could spare a buck.
And then I thought about it for a minute. —You know what I mean? I really thought about it.
And then I said “Nope.”
August 8, 2010 at 2:12 pm #700818
CarsonParticipantDP, you are right about Politico, he is nuts for sure! I am still waiting for the name of that business owner who will lay off employee’s if he has to pay a state income tax.
An example might be:
My name is John Galt, I own John Galt Plumbing. Last year I made $230,000. If I am forced to pay $11,000 in state income taxes I will be forced to fire 3 employee’s.
Of course there is no logic in that, for the same reason the argument has no merit.
August 8, 2010 at 6:34 pm #700819
DPMemberI agree with you in this respect, Carson: we should be tough on people who make unsupported claims or cite statistics without backing them up.
So I like your line of attack on this.
However, I don’t like that you told WAPolitico to “take your crap and shove it.” I think that might just have given him the excuse he was looking for to bug out of here before you could deliver the death blow to his arguments.
I know the Blogosphere is not for sissies. I’d just like to see this particular forum be a place where people can take a chance on making an unpopular argument without being spoken to harshly.
I see this as a distinct possibility. :-)
—D.P.
P.S. Yes, I well remember what an ass I’ve been on this forum, acting smarmy and putting people down for just for questioning my point of view.
August 8, 2010 at 7:02 pm #700820
CarsonParticipantDP,
Politico has an agenda, like others, they post BS and move on. ie, nothing more than crap. He won’t/can’t back up anything. You are also smart enough to smell them out.
Sure, my approach can be a little over the top, but if you don’t call out those pushing their own narrow special interest then others might actually accept what they say as fact.
August 8, 2010 at 7:43 pm #700821
JoBParticipantWaPolitico…
ok.. let’s say your arguments have merit..
so could you go back through that list of Washington high earners who hasn’t laid off workers since 2007 or better yet has added to their payroll since 2007?
and a question…
in a state where sales tax has replaced income tax as a tax structure..
how do we replace the income from the lost sales tax of that 14% of state sales tax income ?
because according to your references those who would be affected by the new tax aren’t spending now.
“From the AP this week:
“Economists say overall consumer spending has slowed mainly because the richest 5 percent of Americans — those earning at least $207,000 — are buying less. They account for about 14 percent of total spending. Think of the wealthy as the main engine of the economy: When they buy more, the economy hums. When they cut back, it sputters.”
I really don’t understand the logic here.
August 8, 2010 at 8:22 pm #700822
JiggersMemberLook..unless you guys understand that the State Of Washington’s goal is to squeeze the middle-class out, you’re going to drown in your own mud soon. They have for years been unkind to small business owners and lower-income families. It is, and has been, their goal to make Seattle a place of wealth $$$$$ wise. If you can’t read between the lines, you’re already drowning. I’d be glad to give more money to the government if I was making what the top 5%centile is. That tells me I’m doing better. Maybe I’m off my rocker. Oh yeah.. I am all for state income tax too.
August 8, 2010 at 8:47 pm #700823
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