Seven states, including Washington, do not levy an income tax. Instead, the state relies on three highly regressive taxes, the property tax, business and occupation tax and sales tax. This discussion brief outlines various options for an income tax as well as outlining the issues surrounding this controversial revenue source.
Since 1935, voters have rejected seven separate personal or corporate income tax proposals. The last comprehensive proposal for enacting an income tax in Washington state was put before voters in 1973 (HJR 37). The 1973 proposal included capping sales tax and B&O tax rates while implementing graduated income tax rates for both corporations and individuals. Although supported by the legislature and popular Governor Dan Evans, voters defeated the measure by a 23% yes to 77% no margin. Since 1973, two separate corporate income tax initiatives have been before voters, one in 1975 and one in 1982. Both measures were overwhelmingly defeated.
Although not immediately apparent to the majority of citizens, Washington state has one of the most unfair tax systems in the nation. A regressive tax structure is one in which low-income citizens pay a higher proportion of their incomes towards taxes than do wealthy citizens. A study of state tax systems completed by Citizens for Tax Justice estimates that Washington state has the most regressive tax system in the nation. To illustrate, a Washington family in the lowest 20% income bracket pays 17% of their income towards state and local taxes while Washington families in the top 1% income bracket pay only 3.6% of their incomes towards state and local taxes. A state income tax can help to alleviate this bias, particularly if implemented with a graduated rate structure.
Conventional wisdom holds that Washington voters would strongly reject an income tax proposal. However, in a recent poll 45% of respondents indicated they would support an increase in taxes to maintain programs such as education, health care and transportation, while only 25% preferred cutting programs. In the same poll, 51% of respondents supported an income tax levied on incomes over $100,000.
Various national surveys about tax issues indicate voters view the sales tax as the fairest tax. This suggests that voters either are not aware of the regressive nature of sales taxes, or they are not concerned about issues related to tax regressivity/progressivity. In surveys conducted in Tennessee and Georgia respondents indicated their support (59% and 53% respectively) for a flat rate income tax in comparison with a progressive income tax.
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