As we noted in our report on Washington’s Initiative 1098 last month, voters in the Evergreen State have voted six times to reject a state income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. . Yesterday, it happened a seventh time as voters opted to keep the state one of seven with no income tax by a margin of 65.6% to 34.4%. The measure was pushed heavily by Bill Gates, Sr., father of the Microsoft billionaire and successful in his own right, Gov. Christine Gregoire, the Service Employees International Union, and the National Education Association.
The conventional wisdom in recessions is that the income tax is the last thing officials turn to when dealing with state budget deficits. Much more politically attractive are the toolbox of things that Illinois and California in particular have used, such as furloughing employees, moving payments into the next fiscal year, increasing withholdingWithholding is the income an employer takes out of an employee’s paycheck and remits to the federal, state, and/or local government. It is calculated based on the amount of income earned, the taxpayer’s filing status, the number of allowances claimed, and any additional amount of the employee requests. , raising fees, excise taxes like cigarette taxes, and just not paying bills. (I pity the new Illinois Governor’s task on taking office; California has a bit longer to go as they just discovered not paying bills.) After those things, then come the sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. and finally the income tax.
This recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. has been different on that score. Some states have been more willing to hit up the income tax by designing it to only hit high-earners. Such a tax is poor policy: it’s a narrow, high-rate tax on a highly mobile group of people who earn way less in bad economic times anyway, and the spending it supports is on thin ice politically since most voters are getting something without paying for it. In Washington, for instance, Initiative 1098 would have imposed a tax on 1.2% of the population and used the money to provide some tax cuts for most and a big boost in spending for all.
Even that couldn’t convince voters to junk a key advantage Washington has over other states. Proponents cited statistics showing that Washington’s tax system is the most regressive in the United States, but that isolated stat doesn’t mean much since one must look at the federal and state systems together, and taxes as well as spending, to determine whether people get bang for their buck.
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