Editorial: What would you change in the state tax system?
By the Herald Editorial Board
Now’s your chance to not only complain about taxes, but – maybe – to help make Washington’s tax system fairer and easier to understand.
A task force comprised of state lawmakers and other state and local officials continues its efforts to consider potential reforms of the state tax system by the legislature in the coming years.
While the State Tax Structure Task Force has completed a series of online town halls that have garnered public comment on the tax system and several proposed reforms, the task force is still collecting feedback by the through online surveys – one brief, the other more detailed – which allow the resident state to comment on several ideas being considered.
Polls ask questions about tax fairness; options to maintain or reform the current state system of sales, property, business and occupancy taxes and other taxes; and various proposals that would reduce or replace the current list of state taxes.
The task force – which includes lawmakers from both parties and chambers and representatives from the governor’s office, the State Department of Revenue, the Association of Washington Cities and the Association of Counties of the Washington State – examines changes to the state’s tax system that would provide more fairness and justice, greater stability and predictability in meeting state revenue needs, and more transparency regarding the tax system.
The working group is expected to consider public comments and continue discussions over the coming year, with the possibility of legislation in 2023.
Potential reforms seek to be revenue neutral, which means the intention is not to raise more or collect less taxes and revenues, but to find a better combination of taxes that would improve the structure. fiscal.
And there is no choice but to defend the state in terms of tax fairness.
Washington state ranks at the bottom of the 50 states in the most recent report from the Institute on Taxation and Economic Policy, a non-partisan tax advocacy group. His report âWho pays? Is its state-by-state assessment of tax systems. The ITEP ranked Washington last in tax fairness, leading its âTerrible Tenâ states, based on the percentage that the state’s lowest income families pay in taxes compared to the little that they pay. the richest in the state pay in taxes.
âWashington has the most unfair national and local tax system in the country. Incomes are more unequal in Washington after collecting state and local taxes than before, ârevealed the sixth edition of the report.
Take a look: Washington state families in the bottom 20% in income – those earning less than $ 24,000 a year – pay about 17.8% of what they earn in taxes, while the richest 1% – those who earn at least $ 545,900 or more per year – pay only 3% of their income in taxes. Those in the middle of 20%, with incomes between $ 44,000 and $ 70,100, pay 11% of their income in taxes.
This disparity – giving Washington the dubious distinction of having the nation’s most regressive tax system – is the result of a system that has no income tax and instead relies heavily on national sales taxes. and local.
ITEP, in its âWho pays? report, notes that states with the fairest tax systems rely less on regressive sales taxes and instead use broad brackets and progressive income tax rates; and offer targeted and refundable tax credits for low-income people.
Of the state’s total tax revenue for 2020 of $ 26.83 billion in 2020, about 45% – $ 12.1 billion – was generated by sales taxes, according to the State Revenue Department. ; another 11 percent – $ 3 billion – came from the sales tax on tobacco, alcohol, and the state tax on gasoline and diesel fuel. Business and operating taxes, also known as B&O, generated 17% of revenue, or $ 4.6 billion; while property taxes accounted for 14 percent of revenue or $ 3.6 billion. Other taxes accounted for the remaining 13 percent, or $ 3.6 billion.
Where is this money going? About 47 percent support public education from kindergarten to grade 12; 33 percent is spent on human services; nearly 7 percent on higher education; and the balance goes to government, natural resources, debt service and other spending.
Among the proposals being studied and included in the online survey:
One, regarding property taxes – currently capped at no more than 1% increase without voter approval – would tie increases to the state’s population and inflation.
A second would forgo property tax on the first $ 250,000 of the assessed value of a primary residence and replace lost income with a 1% wealth tax on stocks and bonds valued at more than $ 1. ‘a billion dollars.
One-third would reduce state sales tax by 2 percentage points; reduce property taxes by 25% and forgo the first $ 250,000 of assessed property value and eliminate B&O tax, while adopting fixed income taxes for corporations and individuals.
A fourth, with the reductions and eliminations described above, would adopt graduated rates for corporate and personal income tax.
Washington State has no income tax; voters approved a state income tax in 1931, but the law was successfully challenged in 1933, with the state Supreme Court ruling it unconstitutional. Other court cases and elections kept the state’s tax package exempt from income tax, but some suggested the ruling aimed for a progressive income tax and that a flat income tax could pass the constitutional course. Passing a progressive income tax would require a two-thirds vote in the legislature and a constitutional amendment approved by voters.
State residents and businesses will have their own opinions on what is fair and what is not about the state tax system and any reform proposals being considered; but that is why these thoughts are needed now.
The task force co-chairs – State Senator Keith Wagoner, R-Sedro-Woolley, and State Representative Noel Frame, D-Seattle – also disagree on the best options for reform, “but we are aligned with the process. Wagoner told Washington Wire in September.
âAnd I think it was really helpful. (Frame) and Iâ¦ disagree on a lot of things. But let’s agree on a process where we can hear people. That’s what it’s about.
Take the survey
Washington residents can take the Tax Structure Work Group short or long survey at taxworkgroup.org/survey. More information about the task force, the state’s tax system, and the proposals under consideration – including calculators that show what your tax bill might be under different proposals – is available at taxworkgroup.org / learn.