I’ve got no particular insight into how the budget dance is being choreographed, if at all, but it’s hard to believe the cuts-only budgets being introduced next week are intended to be anything but an opening gambit. Most Olympia insiders I’ve talked to expect an effort to put a tax measure before voters at a special election in June, a measure that would most likely include a temporary increase in the state sales tax to fund specific programs.
And progressive activists like me will once again be expected to promote a highly regressive tax increase on the lower- and middle-income families who can afford it least. Huh.
The truth is, it would be irresponsible to attempt to close a budget gap this big without relying on cuts, deficit spending, and new revenue, and there are few current revenue options in Washington state that don’t impose a substantially regressive burden. And regardless of how distasteful I may find yet another sales tax increase—let alone the even more regressive excise taxes that would likely accompany it—I fully understand that there isn’t the time to implement the type of structural reforms I would prefer, while still meeting the immediate needs of the new biennial budget.
Yet that doesn’t mean Democratic legislators and their progressive constituents are free to simply shrug their shoulders and accept the status quo. Indeed, passage of the regressive June measure may provide exactly the opportunity we need to move our state forward toward a more equitable and sustainable tax structure.
So here’s the deal. Put a sales and excise tax increase on the June ballot, and folks like me will give you our support… but only if you also put on the November ballot a measure that would repeal the June increase, and replace the revenue with a tax on incomes over $200,000 a year.
According to the Economic Opportunity Institute, a “high incomes tax” of 3% on incomes between $200,000 and $999,999, and 5% on incomes over $1 million, would raise about $2.58 billion per biennium, yet fall on only 4% of WA households. I’m guessing that’s slightly more than the June measure would be expected to raise.
Yes, an income tax would take some time to implement, and yes, its constitutionality would surely be challenged. House Speaker Frank Chopp and other legislators have conveniently argued that any income tax would require a constitutional amendment—a nearly impossible political feat—but the Tax Structure Study Commission concluded in 2002 that if challenged, the 1933 decision would likely be overturned:
[T]here is ample reason to believe that a modern income tax, established by the Legislature or by the voters, would now be upheld. The basic reason is that Culliton was based on an earlier Washington case which the State Supreme Court clearly misread. More importantly, the earlier case was based on a line of United States Supreme Court cases that have subsequently been reversed.
[…] Today there are only two states (Pennsylvania and Washington) whose courts have not reversed earlier decisions treating income as property. In all other states where this issue has been considered, the income tax is treated as a form of excise tax or in a category of its own. Accordingly, there is a reasonable likelihood that if the Washington State Legislature or voters enacted an income tax today, Washington’s courts would approach the issue with a fresh view and might very well decide the matter in a manner consistent with the dominant view in other states with similar constitutional provisions.
Legislators who avoid this contentious issue by merely dismissing an income tax as unconstitutional are being disingenuous; it’s been 75 years since the state Supreme Court has directly addressed the core arguments, and many constitutional scholars have testified that they expect the 1933 decision would be reversed if challenged. Furthermore, the scenario I describe, in which the severability clause is written so that the existing tax is not repealed until the new one is implemented, averts any potential 1933-like fiscal crisis that might be created should the court rule the other way. Unless otherwise repealed, tax increases from the June measure, if passed, would continue to generate revenues until the high incomes tax is fully implemented, if ever.
Should the Legislature put a sales and excise tax increase on the June ballot, it will only be due to an overwhelming consensus amongst Democrats that additional revenue is desperately needed to help maintain crucial services during this economic downturn; if you believe the money is needed, there’s really no other way to generate it fast enough to make a difference. But by tying it to a more deliberative November measure that would repeal the June package and replace it with a progressive, high incomes tax, Democrats would also be given the opportunity to take a clear stance for or against the interests of working and middle class families.
In short: if we agree the revenues are needed, how best to raise them? From families who already pay up to 18% of personal income in state and local taxes, or from the wealthiest 4% of households who have long benefited from the most regressive tax structure in the nation?
Are state Dems on the side of the wealthy or the rest of us? This may be the session in which we finally find out.