Another year, another victory for Washington in the race for the most regressive tax system in the nation, and another question for Halloween: Who’s afraid of the income tax?
Obviously, we all are. We’re terrified! In this state the income tax is a bogeyman of simply incredible endurance – one that seems to unite most Washingtonians, but especially conservatives, in quaking terror.
Having lived in several other Western states with an income tax – including the supposed business-climate wonderland of Idaho – I have never remotely understood the attitude toward that tax here. It’s not scary. What it is – and I say this only for argument’s sake, recognizing it’s politically lifeless here – is fairer.
Meanwhile, we plod along with a tax system that is the least equitable to the poor of any state in the country. In a time of massive income inequality, of vast enrichment at the top and utter stagnation at the bottom, our supposedly progressive state deepens that inequality, and has done so for years.
The latest national report on taxation from the Institute on Taxation & Economic Policy, a nonprofit, nonpartisan think tank devoted to studying tax policy, came out last week. It put Washington at No. 1 on the list of states with the most regressive forms of taxation, based on its heavy reliance on sales and excise taxes – and its absence of an income tax.
One might argue that this isn’t really news. Washington has been leading the nation in tax regression for quite some time now. The ITEP has been issuing its reports on regressive taxation since 1996, and our state has reliably led the way.
Last week’s release was the sixth edition of the ITEP’s “Who Pays?” report.
When the fifth edition was issued in 2015, Washington was No. 1.
When the fourth edition was issued in 2013, Washington was No. 1.
When third edition was issued, and the second edition was issued, and the first edition was released, Washington was No. 1.
It’s not a contest we should be happy to win.
This year’s report shows that poor families here pay a proportion of their income that is six times higher than the top 1 percent. Some people don’t view proportionality as important in establishing tax fairness, of course. If the wealthy pay a smaller proportion of their incomes, they still pay more overall. That’s good enough for many – and it’s apparently good enough for the whole state.
But in terms of the real-world impact of taxes on taxpayers, proportionality is a truer measure of fairness, because it is based on the real-world impact of the taxes paid on the payer of the taxes.
Here’s how the Washington State Budget & Policy Center, a liberal nonprofit that advocates for changes to the tax system, puts it: “(T)he purchase of toiletries, clothes, and other common goods account for a disproportionately large share of annual family budgets among households with low incomes. Everybody buys these items, but the associated sales taxes take up a larger portion of family budgets on the lower end of the income scale than those at the very top.”
The ITEP report shows that a family living in the bottom 20 percent of incomes in Washington state – earning $24,000 a year or less – pays nearly 18 percent of its income on state and local taxes. The families in the next two quintiles – 40 percent of state residents – pay more than 10 percent.
The top 20 percent pay below 7 percent.
And the wealthiest 1 percent, earning more than $545,900, pay just 3 percent.
There is more inequality in our state after taxes than before. And if you don’t think that a proportional measure of that impact is an accurate gauge of fairness, you probably never had to wrestle with a $20,000-a-year income.
Across the border in Idaho, which those who oppose the income tax consistently praise as a wonderful business environment, you can see the effect on tax equity that comes with the income tax: The poorest 20 percent of Idahoans pay 9.2 percent of family income to state and local taxes, while the wealthiest 1 percent pay 7.2 percent.
Now, it’s still regressive. In fact, that’s one of the overall points of the annual ITEP report: to illustrate the regressive nature of so much of our tax system.
“The vast majority of state and local tax systems are inequitable and upside-down, taking a much greater share of income from low- and middle-income families than from wealthy families,” the report’s summary says. “The absence of a graduated personal income tax in many states and an overreliance on consumption taxes contribute to this longstanding problem.”
As noted, though, the income tax just ain’t gonna fly here. But there are other ways to counter the regressive nature of our tax system: The Budget & Policy Center has been pressing for a modernized and improved Working Families Tax Rebate.
The rebate, which would be tied to the federal Earned Income Tax Credit, would go to low-income workers. As the center proposes it, 1.4 million Washingtonian workers earning $50,000 or less annually would get a rebate based on half their federal EITC award, with rebates up to $3,100.
That would be a significant expansion of the original program, which was passed in 2008 but abandoned in the postrecession budget-cutting. It could be crafted in any number of ways, with different rebates or qualifications. But the center argues that it would be an effective investment in improving the state’s tax fairness and provide a needed economic boost for working people and communities.
Who knows what the political chances of such a proposal might be? Whatever they are, we shouldn’t be scared of finding ways – outside of the absolutely terrifying income tax – to make taxation fairer.