Proposed state income tax will stymie job creation
The Seattle Times Editorial Board opposes Initiative 1077, which would create a personal income tax in Washington.
THE income tax proposed by Bill Gates Sr. as Initiative 1077 is a high-risk gamble. On top of the $808-million-a-year tax increase the Legislature has just imposed on the people — and they have not yet had to pay — the Gates proposal would pile another $1 billion net in new taxes. Adding this weight on the private economy would prevent the creation of thousands of jobs the state desperately needs.
The proposal is being sold as a tax on the wealthy. It is not, however, a tax on the already wealthy. It is a tax on becoming wealthy. On top of the 35 percent federal income tax rate, it would add a 5 percent tax on income above $200,000 by an individual, and a 9 percent tax on income above $500,000.
Most people at these levels of income are running a business. They are the ones who can invest and create jobs. Our tax system should encourage them to do that here.
I-1077 encourages them to go away.
Washington is already a high-cost state. The tax employers pay for unemployment benefits is higher than in most other states. So is the tax they pay for injuries at work. So are the costs of environmental protection. But Washington compensates by having no personal income tax. We are one of the few states that can say, "We levy no tax on success."
Among the states, this is our trump card, our ace of spades. It has helped bring Washington cutting-edge companies, giving us one of the most competitive, successful, high-wage economies in the nation.
The sponsors of I-1077 ask that we give up that advantage.
They are trying to shame us into doing this by making a moral claim. Pointing out that Washington's taxes fall heavily on low-income people — which is true — they offer their package as an adjustment. But their idea is not to lighten the existing load on low-income people but to pile a new load on high-income people.
Two decades ago, Gov. Booth Gardner wanted an income tax — a flat tax of 3.75 percent. He offered to cut the sales tax by 3.25 percentage points. His proposal did not sell, and there were reasons for that. But at least it offered a cut in the sales tax. I-1077 does not.
Though I-1077 is a net increase in taxes of $1 billion a year, it does include two tax breaks, neither of them for low-income people. The larger break goes to business owners. I-1077 gives every business $4,400 more in credits. A number of very small businesses would be exempt entirely from the business and occupation tax. But at companies in a position to create family-wage jobs, a $4,400 credit is not going to do anything.
The smaller proposed break is a 20 percent reduction of the state property tax. That sounds like a big amount, but most of the property tax is local. Of all property taxes, the proposed cut is 4 percent.
For that, you get an income tax.
Probably it will not fall on you right away. It is designed — using focus groups and political consultants — to make you feel safe, so that you will obediently vote "yes."
But taxes grow. Especially income taxes. The federal income tax began 96 years ago as a tax for high earners only, with a top rate of 7 percent. The average American was told he'd never have to pay it.
I-1077 is the seed of a big, big thing. Think twice before planting it in Washington.