How much is tax in washington
Last fall, a Washington, D.C. think tank added to the griping in a big way. The Institute on Taxation & Economic Policylabeled Washington's tax system the most regressive in the nation.
In other words, taxes in Washington take a greater proportion of poor people's income than wealthy people's and do so more than any other state
The institute estimates that the poorest 20 percent in Washington pays 17.3 percent of their income in state taxes while the top 1 percent pays 2.9 percent.
The state had the same dubious honor in six years earlier in a report by the institute, a nonpartisan group that studies taxes.
The ranking has come to the forefront of a political debate this year, when voters are being asked in Initiative 1098 to approve a state income tax. Part of the selling point for the measure is the unfair nature of the state's tax system and how I-1098, which would tax only the wealthy, would change that.
Different studies, different results
But is the state's tax system the most unfair in the nation? Perhaps not. A different method of calculating might produce different results.
What is certain is that the state's tax system is regressive and that I-1098 will change that but only modestly.
The Washington, D.C. institute isn't alone in proclaiming the state's tax structure regressive.
The state Revenue Department estimates that families with incomes under $20,000 pay 14.2 percent of their incomes in major state and local taxes. Families with incomes more than $130,000 pay 3.9 percent.
A special state panel in 2002 concluded that "Washington's tax system is regressive." The poorest pay 15.7 percent of their income for sales and property taxes and the richest pay 4.4 percent of their incomes, the panel found.
Bill Gates Sr. father of the Microsoft founder, chaired that panel and is now a prime mover to approve a state income tax.
Washington doesn't have an income tax -- five of the states that the taxation institute labeled as most regressive didn't.
It also has a sales tax that's regressive and costly but also vital.
Washington's sales tax can go as high as 9.5 percent, depending on how much local governments add to the state rate of 6.5 percent. It is 9.5 percent in much in of King County, where there is an additional 0.5 percent charged at bars and restaurants.
So the state has a sales tax rate that is among the highest in the nation.
Sales taxes produce about half the state's revenues. Add selective sales taxes on such items as gasoline, alcohol and cigarettes and the amount tops 60 percent. The state's tax on gasoline and cigarettes are also among the highest in the nation, the Tax Foundation has estimated .
Still, Washington does not have a heavy overall tax burden compared with other states. The Tax Foundation, a Washington, D.C. group, estimates Washington's local and state taxes are below the national average and ranks the state 35th in terms of tax burden.
Washington depends heavily on sales taxes while other some states without an income tax. like Alaska, Texas, Wyoming or Nevada, can also tap such revenue sources as gambling, oil production, mining.
But does that make Washington the worst?
Hardly, says the Washington Research Council. a conservative think tank, which thinks the state is undeserving of its most-regressive ranking.
For one thing, the ranking by the Institute on Taxation & Economic Policy is a snapshot in time. In a report mostly devoted to I-1098, the council noted that people move out of lower income groups: college students graduate, incomes grow,
the unemployed find jobs.
Federal studies also show low-income people spending more than they make. That can't be sustained over time. So spending habits, too, change over time.
"That's cold comfort for people who are hit harder by the tax system now," said Matt Gardner. executive director of the taxation institute. "The Washington state tax system is digging the hole deeper for the people who are poor right now."
The state panel that Gates chaired in 2002 concluded that Washington's tax system is still regressive when considering lifetime tax burden.
Gardner also notes that the recession has increased unemployment and reduced incomes, putting more people in the lower-income groups.
The Washington Research Council also objects to how the institute treats the business and occupation tax. Businesses pay the tax on gross receipts. But some of that is shifted to consumers through higher prices.
The institute's calculations puts too much of the B&O burden on consumers, not business owners, the conference believes.
Gardner said the institute treated B&O taxes by using a widely accepted formula.
State and local sales taxes are so dominate in Washington -- producing about three times as much revenue as B&O taxes -- that how to treat the business tax may not make much difference to the bottom line. "It's not a flicker in anybody's eye," Gardner said.
We don't, of course, pay only state and local taxes. And the graduated federal income tax makes the total tax burden in Washington more progressive, Gardner said.
The conservative council believes that underscores an important point. Rebuild Washington's tax structure to make it more progressive -- the council sees that as a scheme to redistribute wealth -- and the wealthy will simply move elsewhere.
"Because people and businesses move, states have limited ability to redistribute income. For this reason, the more appropriate level of government on which to conduct redistribution is the federal. When states attempt excessive redistribution, they wind up shooting themselves in the feet, " Kriss Sjoblom. vice president for research and economist at the Washington Research Council wrote in an e-mail response to questions about its conclusions.
Critics also noted that focusing only on taxes paid leaves out benefits received. The help government gives the poor ameliorates the impact of taxes on them, goes the argument,
The difficulty with that approach, Gardner said, is that the benefits poor people receive -- public housing, welfare, food stamps -- are easy to calculate.
But the benefits we all receive -- police protection, safeguarding the environment, education -- are harder to pencil out.
The reality of Washington's tax system is that its burden on lower income residents may not change much even with an income tax.
I-1098 would tax the incomes of individuals making more than $200,000 and couples making more than $400,000.
It would cut state property taxes by 20 percent. Local governments account for most of the property tax bill.
It would also provide a tax credit for the B&O tax, exempting 118,000 businesses from the tax and reducing the levy for 39,000.
But it doesn't touch the sales tax. Cutting the sales tax in a significant way would take a different income tax, one likely that includes more than just the wealthy.
The Economic Opportunity Institute. a Seattle group that supports I-1098, says the income tax on the wealthy would reduce the burden on the poorest from 17.3 percent to 16.6 percent of income and increase it on the wealthiest to 5.3 percent.
"Because we start with such a regressive system, it will be less regressive," said John Burbank, executive director of the Economic Opportunity Institute.Source: m.seattlepi.com