Washington: It's time to rebuild the state's tax system

By David Camp
Special to The Seattle Times

11/24/02

Seattle, WA - Five months ago, on The Times' letters page, I predicted the defeat of the state transportation bill that became Referendum 51. I also predicted the bill would die because we are reaching the threshold at which poorer Washingtonians will no longer vote themselves more sales taxes and user fees, which now seems borne out by the Nov. 5 election results.

Now I'll venture another prediction. While pollsters attribute the loss of R-51 to skeptics of government, that government skepticism is simply rationalization. Soon we'll begin to acknowledge the truth: Our regressive state taxes hurt the poorer half of the electorate so much, they will not support this state's needs. It's time to stop pointing fingers at rural dwellers and transit purists. The fact is, it's time to rebuild our whole state tax system.

Simply put, our reliance on regressive sales taxes and user fees creates an enormous barrier to funding services beyond the willingness of the less affluent to part with what little extra money they have. In times of growing needs, that's a problem. During recessions, it's an even greater problem. What we saw in the general election was a headlong crash into a barrier of tax resistance, shattering Referendum 51, nearly derailing the popular monorail. The day's big winner was an initiative to slash car-license fees.

We shouldn't act so surprised. Taken in regional context, Washington's tax system is bizarre. Conservative Idaho, Montana and Wyoming all tax more progressively. So do liberal California and Hawaii. Income-tax-dependent Oregon seems positively socialist — until one considers Alaska, which gets its tax revenues from business and mails checks to individuals! Yet, Washington puts all the tax weight on the little guy. And now, after a generation of bumping against the electorate's sales-tax ceiling, the CEOs are screaming for infrastructure.

But wait. ... Oregon has better infrastructure and lower taxes! According to the U.S. Census, Oregon is now 37th in per-capita state taxation (we are much higher at 16th), yet many of its state services outstrip Washington's.

Visit an Oregon state park sometime, marvel at perfect roads, or take in the amazing public spaces and transit network in Portland. Magnificent! The reason? A tax system that relies on personal and corporate income taxes. Oregon public works get voter support because it doesn't hurt most Oregonians too much to vote for them.

Of course, just as our sales-tax revenues fall in bad times, so do Oregon's income-tax revenues. However, Oregon's income taxes do two wonderful things our sales taxes don't. First, they steer millions in private money to infrastructure by exempting from both Oregon and federal income taxes the income earned from municipal bonds within the state. Second, and better yet, Oregonians deduct their state income tax from federal income taxes, so they pay a far lower combined tax bill than each of us in Washington does.

Consider the meaning of that. The desire of opponents to prevent a Washington state income tax not only shifts a huge burden onto those least able to pay, it dramatically raises everyone's taxes by passing up federal deductions.

Here in Washington, the great game is to create new sales taxes that don't bite as many nor as often, so they go unnoticed. You want your kids to have science classes in school? Cough up a C-note. Visit a park? Bring a buck. A fishing license? Take out a loan.

When voters rebelled against sky-high car-licensing fees, the state turned to additional sales taxes on hotel rooms, sports events, cell phones, you name it. Now, Metropolitan King County Councilman Rob McKenna gleefully announces road tolls are on the way.

"Microtaxes," I call them. You kill one and another rises in its place. It's like being devoured by ants.

Unlike Oregon's Bill Sizemore, who has been far less successful as that state's tax-cut hustler, Washington's Tim Eyman has built his successful political business from a basic truth: Overcharging for auto licensing is merely another unreasonable sales tax. The triumph of Eyman's Initiative 776, rolling back licensing fees once again, is proof that he has struck a nerve in the electorate. It's the sales taxes and fees, stupid.

In short, we cannot run a growing state on the willingness of the poorest to spend their last dollar on taxes. Yet, that is what we now do. It's time to think long term for a change. Think income tax.

David Camp is a marketing and brand consultant. An Oregon native, he is a longtime resident of Seattle.