Editorial: Income tax initiative dripping with flaws

Our nomination for the cleverest, most delightful political ad of the season goes to the campaign for Washington’s Initiative 1098.

In it, Bill Gates Sr., the name and face most associated with the latest state income tax proposal, is seated over a dunk tank and alludes to descriptions of his ballot measure as an effort to “soak the rich.” (Dunk tank, soak the rich, Bill Gates Sr. – get it?) In the end, he gets dunked but comes up smiling.

Great ad, but not great enough to overcome the underlying proposal’s flaws.

If approved by voters, I-1098 would impose an income tax on so-called “high earners” – individuals making more than $200,000 a year or couples making more than $400,000. It would provide the state with some $2 billion a year.

Yes, Washington state government could use such an infusion of revenue, but there are several problems, starting with the fact that the state Supreme Court ruled in 1933 that a graduated state income tax is unconstitutional. Proponents of I-1098 are hoping today’s Supreme Court would see things differently, but even if they’re right – and we have our doubts – the time and money it would cost to obtain a legal resolution make this proposal an unlikely answer to Washington state’s immediate financial woes.

As we’ve said before, a state income tax is a good idea if it’s part of a comprehensive, revenue-neutral reform package. I-1098 is neither. While it would make a modest reduction in property taxes and make a substantial reduction in the business and occupation tax, especially for small businesses, it wouldn’t touch Washington’s high sales tax. This is particularly odd, since advocates contend Washington’s tax structure relies too heavily on sales taxes, which fall disproportionately on low-income people.

There is, in fact, a litany of shortcomings in the initiative.

Being one of only nine states without an income tax is one of Washington’s few advantages in attracting business investment that could strengthen our economy and stabilize our tax base.

As a statute rather than a constitutional amendment, the income tax measure would be subject to legislative amendment, rendering meaningless the sponsors’ assurances that the tax won’t be increased or expanded to a broader range of incomes or spent on purposes other than education and health care.

The formula assesses incomes prior to deductions, thus removing an incentive for charitable giving.

It would double-tax small businesses organized as S corporations and put them at a disadvantage against out-of-state competitors.

Washington state needs a more favorable business climate to create jobs and a stable tax base. Tax reform should be comprehensive, revenue-neutral and constitutional. I-1098, despite the good intentions behind it, is a backward approach.

If I-1098 passes, it is Washington state that will get dunked, and it won’t be anything to smile about.