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Originally published Friday, October 22, 2010 at 2:01 PM

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Guest columnist

I-1098 will be a boon to Washington's economy

Guest columnists Aubrey Davis and Dick Chapin argue that Initiative 1098 will fuel Washington's economic growth and quality of life.

Special to The Times

INITIATIVE 1098 will boost Washington's economy and rebuild the foundations for opportunity and prosperity: public schools, colleges and universities, and a healthy population.

Arthur Laffer argued the opposite in last Sunday's Seattle Times, theorizing that tax cuts generate economic activity, and tax increases hurt growth ["Passage of Initiative 1098 would be economic suicide for Washington," Opinion]. This notion was embraced by President Reagan, who cut federal income taxes in 1981. The economy went into a tailspin.

In 1993, President Clinton's modest tax increases on the wealthy and tax cuts for the poor and middle class were followed by multiyear economic growth and a federal budget surplus. President Bush cut taxes on the wealthy again — and we all know how that turned out.

But historical reality doesn't deter Laffer. He notes, in a flurry of data, that the 11 states that adopted state income taxes since the 1960s have not performed as well as the 32 states that adopted income taxes earlier and the seven states (including Washington) without an income tax.

Conveniently, he fails to note those same 11 states are clustered in the Midwest and Northeast, forming the core of the U.S. auto manufacturing industry. Laffer would have us believe the decline of that industry has more to do with the fact that Michigan, Indiana, Ohio, Pennsylvania and neighboring states adopted income taxes, instead of oil crises, U.S. trade policy and competition from the Japanese.

Many factors explain economic prosperity. Washington has ports serving the Pacific Rim, research universities, a well-educated and skilled work force, stunning natural beauty, abundant clean energy, a strong agricultural sector, and homegrown industries like Boeing and Microsoft.

But we are undermining future prosperity by skimping on public investments today. Washington ranks 47th among the states in funding K-12 education relative to personal income. We rank 37th in awarding bachelor degrees. Yet we're cutting higher-education funding and have raised tuition at the University of Washington by 30 percent over the past two years. And we've allowed 900,000 of our fellow state residents to go without health insurance.

I-1098 will provide $2 billion per year in new funding for key investments that will pay off for everyone: preschool for at-risk kids, smaller class sizes, more rigorous high-school graduation standards, greater access to college, basic health coverage, and support for long-term care.

It also provides a property-tax cut, averaging about $180 per year for King County homeowners, and a substantial tax cut for small businesses. Unlike the wealthy, who do not need to spend all their income, the middle class and small-business owners will spend those tax savings, multiplying the economic impact of that $650 million tax cut.

These investments will be paid for through a modest new tax on the wealthiest 1.2 percent, those of us who have benefitted the most from all Washington offers. Only income over $200,000 for individuals and $400,000 for couples will be taxed. With those large exemptions, Washington's effective income tax rate on the top 1 percent will place us at 26th among the 44 states with an income tax.

Will this tax undermine our prosperity? Laffer cites Connecticut as the state that most recently adopted an income tax. Now Connecticut has the best per capita income in the country, topping $54,000 — $19,000 more than Washington. New Jersey adopted an income tax in 1976; today, per capita income there is over $50,000.

Will an income tax drive wealthy entrepreneurs away? Proportionally, there is almost twice the number of rich people in Connecticut and New Jersey than in Washington.

Join us in supporting I-1098 — for the benefit of all of us, for our quality of life, and our economic growth.

Aubrey Davis, left, is founder of Gaco Western. Dick Chapin is a retired Republican state legislator from Issaquah.

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