In 2008, the Washington Legislature passed a tax rebate for low-income workers, pledging to send them a few hundred bucks a year to make up – at least a little – for how they’re penalized by the state’s regressive sales tax.
It was an empty gesture.
In the dozen years since, no one has received a dime from the “Working Families” tax credit enshrined in state law. Legislative budget writers have pleaded poverty or other priorities in declining to fund it.
That’s finally about to change.
With broad bipartisan support, both houses of the Legislature have passed an expanded version of the tax rebate. Gov. Jay Inslee, who has long supported the policy, is expected to sign it into law.
Starting in 2023, an estimated 420,000 Washingtonians will receive rebates of between $300 and $1,200. The program, modeled after the federal Earned Income Tax Credit (EITC), is expected to pay out about $250 million a year.
“I wish we could do more. But this is a historical piece,” said Rep. My-Linh Thai, D-Newcastle, the chief sponsor of tax-rebate measure, House Bill 1297. “It’s a little thing that government can do for the people.”
Thai credits, in part, the election of a more diverse set of lawmakers, including some who represent refugee and immigrant communities, with helping to finally make the promised rebates a reality.
Lopsided tax system
The rebate’s passage and funding are the culmination of years of organizing by advocates seeking to rebalance Washington’s tax code, which studies have shown makes the poorest households pay six times the tax rate as a share of income compared with the richest.
“We have a really regressive system and this helps finally start to turn it right side up,” said Margaret Babyan, a policy analyst with the Washington State Budget & Policy Center, a left-leaning think tank supportive of the rebate.
That’s largely due to the state’s lack of a progressive income tax and reliance on the sales tax, which charges everyone the same flat rate. The state sales tax is 6.5%, but local add-ons bring it to more than 10% in cities such as Seattle.
As they push the low-income tax rebate, Democratic lawmakers this year also are seeking to make the richest Washingtonians pay more, through a new tax on capital-gains income. The 7% tax would apply to gains of more than $250,000 on the sales of assets such stocks and bonds.
Eligibility for the new low-income tax rebates mirrors the federal earned-income credit, and will depend on income and family size. For tax year 2021, a married couple with three children could earn up to $57,414 and qualify. The rebate decreases for people with incomes close to the maximum allowed, with a minimum of $50.
Payments will be smaller and harder to come by for people without children. A single person with no dependents would qualify with an income of $15,980 or less.
Unlike some past years, the rebate concept has drawn only a smattering of opposition as it has moved through the Legislature. It passed the state House last month on a 94-2 vote and cleared the state Senate last week, 47-2. The four ‘no’ votes came from Republicans.
State Sen. Mark Schoesler, R-Ritzville, said he voted no because “we’ve created an entitlement.” He cited the Senate majority’s decision to strip out a provision that would have made rebates subject to available appropriations, meaning they’d have to be funded by the Legislature in each budget.
“I’ve told the advocates, why not just lower the sales tax? Why not lower car tabs for people in those lower income percentiles,” Schoesler said.
But the decision to fund the rebate is welcome news to Amirah Harris, a 23-year-old from Tacoma.
She’s a certified caregiver and member of SEIU 775, who provides long-term care for disabled and elderly people, cooking and cleaning and helping them with medication.
“The impact, I feel, would relieve a great deal of stress, financially and emotionally,” Harris said, describing debt worries that have kept her up at night, and struggles with unexpected expenses and paying for health care.
State Sen. Joe Nguyen, D-West Seattle, who sponsored the Senate version of the rebate bill, remembers his own experiences with poverty growing up as the son of Vietnamese refugees.
“You can do transformative things without throwing gobs of money at people,” said Nguyen. A cash benefit of a few hundred dollars, he said, “would have been huge” for his family.
Nguyen and other supporters say the COVID-19 pandemic, and the example of the individual payments in the federal stimulus packages, helped demonstrate the value of cash assistance.
“When you help people, you can actually alleviate homelessness before it happens,” Nguyen said.
The federal EITC has been shown to be an effective anti-poverty program.
About 25 million taxpayers received the break in 2020, with an average credit of $2,461, according to the Internal Revenue Service. The extra cash provided by the EITC lifted about 5.6 million people out of poverty in 2018, including 3 million children, according to census data analyzed by the Center on Budget and Policy Priorities.
A food lifeline
While the Washington economy has started to recover from the COVID-19 shutdowns, gains have not been evenhanded. Unemployment rates for lower-wage and service workers have remained higher than higher-paid tech workers and others able to work remotely.
The continued hardships were evident on a recent Wednesday at the Rainier Beach Community Center, where cars queued up early in the morning and quickly stretched around the block for a weekly food distribution by Food Lifeline.
The drive-thru operation features masked volunteers efficiently loading car trunks with cardboard boxes filled with lettuce, onions, cabbage, squash, watermelons and other produce from an Auburn farm.
“It hurts to see families coming through to get emergency food, knowing we have the most upside-down tax code in the entire country,” said Aaron Czyzewski, advocacy and public policy director for the nonprofit Food Lifeline, who pitches in weekly at the mobile food giveaways.
The demand for food has only grown more intense as the pandemic has worn on. Last July, the event was serving 300 households. By December it was 900, and for the past four weeks 1,400 households have been served at the Rainier Beach event, Czyzewski said.
That’s part of the reason Food Lifeline joined a coalition of more than 40 organizations pushing for the rebate. Those groups are mostly liberal and Democratic Party supporters, but the rebate this year has drawn wide support from Republicans in Olympia, too.
State Rep. Drew Stokesbary, R-Auburn, a co-sponsor of the proposal, has been pushing for its funding for more than a year.
“I think it is the ideal Republican, small-government, conservative form of a social safety net,” Stokesbary said, contrasting it with other programs that require someone to apply for a specific benefit confined to a single use, such as rent or child care. “If you just have cash in your pocket and get to decide what your need is, it’s less bureaucracy,” he said.
Nguyen credited Stokesbary’s work as key, saying in a text message the bill wouldn’t have passed this year without it.
Along with the federal government, 29 other states, as well as the District of Columbia, Puerto Rico and Guam, have a version of an earned-income tax credit program, according to the National Conference of State Legislatures.
Most states apply the credit against a state income tax. Washington would be the first state without an income tax to roll out such a program. That makes startup somewhat tricky, and costly, for the Department of Revenue.
An analysis by nonpartisan legislative staff predicts the rebate will require $19 million in startup costs in 2022 and 2023, and ongoing administrative costs of $23.7 million in the 2025-27 biennium.
Back to community?
Supporters say the rebates will benefit more than just individuals, as money will flow into the economy – and could even spark small-business creation.
“People who are going to be able to qualify for this will put it right back into their communities,” said Chevon Powell, who owns a Seattle-based company focused on diversity in outdoor recreation.
Powell compares it with a microgrant she received to help kick-start her business. “When I started in 2012, I started with about $300,” she said. “It will stimulate the economy and we need that in every way possible, especially right now when we are in the midst of this global pandemic.”
Harris, the SEIU caregiver, wasn’t aware until recently how lopsided Washington’s tax system is. Those inequalities breed trouble, she said.
“It doesn’t make too much sense. It kind of reminds me of Rome when it collapsed. I do think change is going to come one way or another. You probably want to make that change the best way possible,” she said.
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