Back to school, Seattle Times: An “F” in math on Initiative 1098

Sightline Daily spells out how a recent Seattle Times editorial sows confusion about Initiative 1098:

Here’s what the paper says:

The new tax created by I-1098 would top out at 9 percent of adjusted gross income, with no deductions. That’s not quite the highest rate in the country: Oregon’s, at 11 percent, is at the top. But Oregon has zero sales tax. We would have high rates of sales and income taxes…

This is plain wrong. We would not have a high rate of income tax under 1098. … The comparison in the editorial amounts to deception because it completely ignores that income tax rates are marginal tax rates — they apply only to income earned above a threshold. (See all state income tax rates here.)

Let’s do the math. If 1098 passes, a Washington couple earning $400,001 per year would pay… wait for it… a whopping 5 cents in income tax.

A whole nickel! Run for the borders!

In other words, for a couple pulling down $400,001 a year, 1098 would institute an effective income tax rate of 0.00001 percent. I don’t think it really compares to, say, Oregon’s tax structure in which the same income would result in $38,272 in taxes, an effective tax rate of 9.6 percent.

The comparison in the editorial amounts to deception because it completely ignores that income tax rates are marginal tax rates — they apply only to income earned above a threshold. (See all state income tax rates here.)

How this works in practice makes a big difference.

The entire post is worth reading – and when you’re done, if you’d like to see just how low Washington’s effective income tax rates would be under I-1098 in comparison to other states, check out the graphs here:

Initiative 1098: If you were wealthy, how would Washington’s income tax compare to other states?

and here:

Initiative 1098 effective tax rates are lower than most

Looking for more information about Initiative 1098? Visit the Economic Opportunity Institute website.

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