I-1098 offers sensible path to tax fairness for everyone

From the Everett Herald:

We all patronize our local small businesses. Owned and operated by our neighbors, they provide our coffee, sandwiches and the small things to fix up our homes. They fix up our cars, and sell us bicycles and books. Most of all, they create the web of neighborhoods and community.

One thing that irks small businesses is the business tax. It is not a high rate, but it is onerous: You have to pay it even when you lose money. The large corporations have figured out tax loopholes and avoidance schemes so that their proportion of state and local taxes is about half that paid by small businesses.

So if you run a small business, and you are offered an exemption from paying the business tax, would you turn it down?

This time is the time of year when the semi-annual property tax bill comes due. Property taxes are crucial for public services, for fire protection, public safety, schools, roads, and most of the things we take for granted because we don’t pay for them directly. But these taxes weigh heavily on homeowners and businesses, especially in the middle of this great recession. So as a property owner, if you were offered a cut in your property taxes, would you reject that?

If you are a parent and your kids are in public school, you are probably worried about the cutbacks in education. Class sizes are going up, courses in high school are disappearing, and you’re wondering if your kids are getting shortchanged for their future. If you have lost your health coverage, you are probably hoping that the funding for Basic Health will increase, so that you can get coverage before something bad happens. So if you were offered a way to decrease class sizes and expand health coverage, would you look the other way?

In all three instances, you might. That would be a bad case of ideological blindness trumping common sense. But it does seem too good to be true. How could we exempt four-fifths of all businesses from the business tax? How could we afford an across-the-board cut in the property tax for homeowners and businesses? How could we come up with the extra money for education and health?

It’s possible because in our state we have excused the wealthy from paying a fair portion of their income to support public services. While middle class families pay about 11 percent of their income in state and local taxes, and low income families pay about 17 percent, the families in between the 95th percentile and 99th percentile of income pay less than 5 percent and the top 1 percent of families pay only 2.6 percent. That means middle class families pay quadruple the tax rate of the very wealthy.

Can we put all these pieces together to create a common sense solution? The people behind Initiative 1098, and I am one of them, think so. What does this initiative do? It cuts property taxes. In Snohomish County, that means on average a $127 cut in property taxes for families and a $445 cut in property taxes for businesses. The initiative also eliminates the business tax for the vast majority of businesses, leaving the current tax in place only for the top one-thirteenth of businesses.

It brings in $1 billion of new public revenue, dedicated to education, expansion of Basic Health, public health and long-term care for the disabled and elderly.

Where is the magic?

The magic is in the beginnings of a fair tax structure. Initiative 1098 puts in place an income tax on the wealthy, the top 3 percent of families in our state, those with incomes in excess of $400,000 a year. It is not a big tax. For a family making $500,000, it amounts to $4,382 in net taxes, or less than 1 percent of their income. For a family making $1 million, it amounts to less than 3 percent of income. Put all these contributions together from the wealthiest 3 percent of families, and we have enough for the property and business tax cuts and expansion of education and health care.

So this may be a good idea, but can it win? A poll by KING-TV showed 66 percent support for this approach. We’ll see how that holds up.

We can put on our ideological and no-can-do blinders and dismiss Initiative 1098, or we can engage in a vital discussion for our democracy. I am rooting for the latter.

*UPDATE 05/21/2010: Because Initiative 1077 has been refiled and renumbered as Initiative 1098 since this article was first published, the title and references to the initiative number have been updated; the content is otherwise the same.

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

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