Sims pitches income tax plan for state

Gubernatorial candidate Ron Sims on Wednesday called for “blowing up” Washington’s tax system, trading its sales and business taxes, and part of its property taxes, for an income tax.

He’s betting enough voters will agree that he can win elections this September and November.

While an economist calls the plan a “breathtakingly simple and sweeping concept,” his main election opponents were quick to criticize it.

Attorney General Christine Gregoire, the other principal Democrat in the Sept. 14 primary, said it would give Washington the highest state income tax in the nation. “Washington deserves to be on top, but not on that list,” she said in a prepared statement.

State Sen. Dino Rossi, the chief Republican on that party’s primary ballot, said Sims is right to try to get rid of the state’s business and occupation tax, but has the wrong solution. It would be better to revise and gradually phase out the B&O tax, he contends. “I have not supported an income tax,” Rossi said.

For months, Sims has been calling for a major tax overhaul that would include some sort of income tax. On Wednesday he released the details of that plan, which represents a complete rewrite of a system he called regressive and ineffective.

“We need to stop digging and find our way out of this hole,” he said during a morning meeting with about a dozen business leaders at the Spokane Club.

Under Sims’ proposal, the state would:

“ Eliminate its share of the sales tax, which is currently 6.5 percent on purchases of most goods other than food and prescription drugs.

“ Eliminate the state’s business and occupation tax, which is levied on a company’s gross receipts at different rates for different types of businesses.

“ Give homeowners an exemption from the state’s portion of the property tax on the first $100,000 of assessed value on a primary residence.

“ Levy a graduated income tax based on the “adjusted gross income” listed on a person’s federal tax form. The first $15,000 of income would be exempted for each adult, and children would receive a $10,000 exemption. After that, the tax rate would range from 4 percent for income under $25,000 to 10 percent for income above $100,000.

The state constitution would be changed to keep the state from re-enacting the eliminated or lowered taxes without voter approval.

Sims believes this combination of tax reductions and restrictions would overcome the public’s resistance to an income tax. The state’s voters approved an income tax in 1932, but the state Supreme Court ruled that plan was unconstitutional; since that time, constitutional amendments involving a personal or corporate income tax have been rejected eight times.

Gregoire noted the plan would require approval of the Legislature plus the voters, and she considered that unlikely.

But voters have rejected past plans because they were asked to trust the state would lower other taxes and keep them low in exchange for an income tax, Sims said. Most other proposals have talked about revising the old system; his program is aimed at “blowing up the whole system.”

Most proposals to replace the B&O tax have suggested a corporate income tax, he added. But his plan has no corporate income tax, a factor Sims contends will attract businesses to the state because Washington would be the only state in the nation without general business taxes.

Sims said his plan had been checked by private economists who concluded that “the numbers add up.” But he declined to name them, saying “they don’t want to be batted around as political balls.”

Glenn Pascall, a Seattle economist who served as state director of revenue in the 1980s, said he reviewed some of the details of his plan and considers it “a sweeping proposal.” He at first wondered why Sims’ proposal didn’t just reduce other taxes and put in a more modest personal income tax, but understands the argument that voters would be suspicious that those other taxes would also come back up.

Not calling for a corporate income tax might also make fiscal sense, Pascall added, because revenue from that tax fluctuates wildly. Sims’ plan is based on a percentage of federal taxes, and many large companies don’t pay federal income tax, Pascall said.

Rossi, who as a state senator helped write state budgets, argued that a personal income tax might also be too volatile to provide a steady flow of money the state needs.