So, why would an elected official like me "reach for fairy dust," as the Seattle Times recently put it, and start talking about a high-earners’ income tax? After all, isn’t that political suicide?
When I came to Washington in the early 1980s to teach economics at Eastern Washington University, I couldn’t believe that we have a tax structure that’s so bad for business, so unfair for the middle class, and so incapable of dependably funding fundamental public services. I thought at the time that if the Legislature only understood these inadequacies, lawmakers would change our tax system in a heartbeat.
I’m no longer so naïve as to think that change comes easily when people perceive that even a slight shift in the system will create winners and losers. But I believe that having this honest conversation with the citizens of our state is a positive thing, and I trust people to evaluate what’s truly best for their families and for our state rather than be swayed by fear tactics.
Is this the time for tax reform?
For the last eight years, in the absence of a federal partner, it’s been the responsibility of individual states like Washington to lead our nation down a positive path – in everything from transportation investments and climate change mitigation to education investments and health care for kids.
States now have not just a partner in the White House, but a true leader in President Obama. For example, his plan to reform our country’s tax code so that the wealthiest families among us pay their fair share in taxes is the right thing to do – and it’s catching on at the state level all across the country.
States following Obama’s lead to consider high-earners income tax increases include Wisconsin, New York, Connecticut, New Jersey, Iowa, Delaware and Oregon. I believe we should consider something similar here in Washington.
Yesterday, I said on this blog that our state should use Obama’s definition of the wealthiest families among us – those who earn $250,000 per year or more. I also said I would respond to the critics of the idea of asking these families in our state to pay their fair share in state taxes.
Are we a high-tax state?
The first thing critics will say is that Washington is already a high-tax state. This is incorrect. According to the Tax Foundation, Washington’s tax burden for state and local taxes is 35th highest nationally. That means we are in the bottom third of the country in state and local taxes.
This ranking doesn’t include federal taxes, of course. Wealthy families in Washington are currently paying 33 percent of their income in federal taxes. But that money goes to Uncle Sam, not Olympia.
In fact, our state sees less in federal funding than our taxpayers pay in federal taxes. For every dollar our state pays in federal taxes, we receive 88 cents in federal funding back, ranking us 38th highest nationally.
(You can read a fascinating historical account of how Washington taxpayers have for years sent their tax dollars to D.C. at the expense of their own state in A Penny for the Governor, A Dollar for Uncle Sam.)
If we instituted a high-earners income tax on these Washington families, they would be able to deduct it from their federal income taxes, offsetting part of the cost, and keeping their tax dollars here at home.
Mass exodus to Alaska?
The second thing critics will say is that wealthy families will leave Washington if we ask them to pay their fair share in state taxes. Again, this is incorrect. If these families decided to go to Idaho, they’d have the privilege of paying 7.8 percent of their income in state taxes. In Hawaii, they’d pay 8.25 percent. In Oregon, they’d pay 9 percent. And in California, they’d send 9.3 percent to Gov. Schwarzenegger (“Hasta la vista, baby!”).
Granted, the cost of living is higher in these states than most. But if our wealthy families decided to go to Alabama, they’d pay 5 percent. In Kentucky, they’d pay 6 percent. In Nebraska: 6.84 percent. And in Arkansas, they’d pay 7 percent.
I suppose Washington’s wealthy families could all move to Alaska (where there also is no income tax) if we asked them to pay a small percentage of their income in state taxes, but I doubt it. Washington is a highly desirable place to live, work and raise a family – and making sure that our schools, neighborhoods and communities are fully and fairly funded will help keep it that way.