Building an Economy that Works for Everyone

Initiative 1098 plays no favorites — unlike Washington’s current business taxes

In a couple of days, the Yes on 1098 campaign will turn in somewhere north of 360,000 signatures for Initiative 1098 — far more than enough to qualify for the ballot — and the campaigns for and against the measure will begin to heat up. Opponents of I-1098 claim the measure will excessively impact businesses, but they’ve overlooked an important fact in their rush to condemn it.

Since I-1098 proposes a modest tax on adjusted gross income (AGI) above $200K for individuals or $400K for joint filers, it neither favors nor punishes businesses — or any other income source for that matter. Whether received from daily wages, winning the lottery, or taking a share of a corporation’s profits, the same rates and thresholds apply to all.

Washington’s current business tax (the Business and Occupation, or “B&O” tax), on the other hand, is a different story. Since B&O taxes are levied on gross receipts — before expenses, before depreciation, etc. — businesses pay tax regardless of whether they turn a profit. Moreover, small and medium businesses pay a disproportionately high share of their income in business taxes.

I-1098 addresses those issues in two different ways:

  • First, by taxing high incomes (earned after a business has turned a profit), instead of taxing gross receipts (regardless of whether a business has turned a profit), I-1098 will make it easier for entrepreneurs to find an economic foothold and grow their business.

Only a small proportion of high-income individuals who claim net business income will be affected by I-1098’s income tax. In 2007, just 1.6% of all Washington tax returns reported over $200,000 in adjusted gross income while claiming net business income. Put another way, of all Washington tax filers claiming any net business income in 2007, only 10.6% showed an AGI of more than $200,000. And since 85% of high‐income returns are filed jointly, a substantial proportion of those tax filers would be exempt from paying state income tax on adjusted gross income up to $400,000 per year.

In other words, I-1098 will make it possible for more businesses than ever to start and succeed in Washington State.

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

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