WA state income tax???

edited March 2009 in The Economy
Is this for real? Should we be angrily calling our "representatives"? Senator Franklin is sponsoring a state income tax.

"SB 5104 - Providing fiscal reform" - taxing the hell out of everyone because we mismanage our budget.

http://apps.leg.wa.gov/documents/billdo ... s/5104.pdf
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Comments

  • Is it for real? Technically, yes.

    However, State Senator Rosa Franklin apparently introduces an income tax bill to the legislature every year:
    Is the income tax proposal for real this year? Every year, state Sen. Rosa Franklin, D-Tacoma, introduces a bill calling for a state income tax. Hers often is the only name listed as a sponsor. Such is the case this year. She dropped the bill Jan. 13.

    The real interesting thing is that a fiscal note was completed on Feb. 11 and it is really elaborate! I mean, state agency and legislative committee staff put one heckuva lot of work into something that in years past has been a non-starter of a bill.
  • I think 41states have a state income tax, and all but a couple have a state sales tax.
    I suppose it does make sense to have revenues coming in from a variety of sources, but it'll never fly in this state. it's political suicide.
  • Plus we'd have to give up our shiny mantle as having the most regressive state taxation scheme in the country.

    Nobody screws the poor like Washington, baby! Wahoo!
  • biliruben wrote:
    Plus we'd have to give up our shiny mantle as having the most regressive state taxation scheme in the country.

    Nobody screws the poor like Washington, baby! Wahoo!

    What tax in Washington is regressive?
  • biliruben wrote:
    Plus we'd have to give up our shiny mantle as having the most regressive state taxation scheme in the country.

    Nobody screws the poor like Washington, baby! Wahoo!

    What tax in Washington is regressive?

    Sales Tax (50% of revenue). Liquor Tax. Gas Tax
    or am I just missing the sarcasm?
    the most regressive tax system in the United States. The lowest income fifth of the state's population pays 18% of their income directly and indirectly in state and local taxes, the middle class pays 11%, while the richest 1% pay just 3%
  • I'd be in favor of a move in WA to something like the Fair Tax. Drop all the other taxes, up the sales tax to the appropriate level, and everybody gets a flat rebate (paid out quarterly) based on the tax you would pay if you spent 100% of some low income threshold.

    That way, the poorest (those below the threshold) actually have a net gain from the system, the poor (those at the threshold) pay nothing, and the wealthy pay the most. Fair, equitable, and simple to administer.
  • The Tim wrote:
    I'd be in favor of a move in WA to something like the Fair Tax. Drop all the other taxes, up the sales tax to the appropriate level, and everybody gets a flat rebate (paid out quarterly) based on the tax you would pay if you spent 100% of some low income threshold.

    That way, the poorest (those below the threshold) actually have a net gain from the system, the poor (those at the threshold) pay nothing, and the wealthy pay the most. Fair, equitable, and simple to administer.


    ... except you can't use taxes to buy votes... how are you ever going to win an election with that system?
  • I'd be all for a state income tax as long as it replaced the sales tax. An income tax is much better for society than taxing sales. Those that have lots of money to spare pay a larger share, while those that are struggling to get by pay a smaller share. Makes sense to me. But don't get me wrong, having an income tax on top of our current sales tax would be horrible.
  • Dave0 wrote:
    I'd be all for a state income tax as long as it replaced the sales tax. An income tax is much better for society than taxing sales. Those that have lots of money to spare pay a larger share, while those that are struggling to get by pay a smaller share. Makes sense to me. But don't get me wrong, having an income tax on top of our current sales tax would be horrible.
    I have to agree here (well, not wiht the last sentence). We moved to a tax happy state and it's painful (since I'm a high earner) but at least there is no tax on groceries and goods up to 100$ are free of tax...So yeah, it does suck for me, but it is a lot more fair to people struggling. Now if my taxes could go to something like school system and health care as opposed to bankers and wars...heck, I might volunteer a 1% increase :)
  • What if we adopted a small state income tax and at the same time lowered the sales tax? Not saying I favor it, but the vast majority of states do have both.
    Is Washington a more enlightened state because we don't have an income tax? Is Oregon a more enlightened state because they only have an income tax and no sales tax?
  • The trouble with a state income tax is that they always start out small when first enacted, but they don't stay that way.
  • I hope I don't start a big argument, but I've been thinking a lot about where taxes should come from.

    I think it would be fair to say that any on an activity is going to feel like you are being penalized for doing activity Some may conciously feel like they are being penalized, but I think virtually everybody would at least get that feeling subconciously and it will, subtly at first, drastically over time, change their behavior.

    So being that a tax on an activity will discourage people from performing that activity, we should probably put the most taxes on things that are less important. In my opinion, earning an income should be the most important activity and the least taxed. Earning an income is usually associated with producing something of value to the economy and thus something to be encouraged. Buying stuff on the other hand is much less important (something that a lot of people are going realize over the next few years). So in my mind taxing sales in general would be preferable to taxing income.

    However, I don't want a regressive tax scheme either, so if that is a problem, I would prefer it to be fixed in some other way than to switch to an income tax. I'm not exactly sure how it would be fixed. Maybe through The Tim's suggestion, maybe stop taxing living essentials like food.

    Am I totally off base here or does it sound reasonable at all?
  • However, I don't want a regressive tax scheme either, so if that is a problem, I would prefer it to be fixed in some other way than to switch to an income tax. I'm not exactly sure how it would be fixed. Maybe through The Tim's suggestion, maybe stop taxing living essentials like food.
    The beauty of the Fair Tax is in the flat rebate. You don't need any specific item exemptions or dollar amount exemptions, or anything. It's so beautifully simple.

    Once again, people below the income threshold actually make money in this system, people at the threshold pay no tax.

    Example:
    Say we have a sales tax rate of 20% and put the no tax threshold at a yearly income of $20,000, therefore the yearly rebate is $4,000. We'll assume the low-income families spend 100% of their income.

    Family A makes $10,000, pays $2,000 in sales tax at the time of purchase, but receives $4,000 "back" split into a quarterly (or monthly) basis. Effective tax rate: negative 20%

    Family B makes $20,000, pays $4,000 in sales tax at time of purchase, and receives it all back through the rebate. Effective tax rate: 0%

    Family C makes $50,000, spends $45,000 of it (saves $5k), pays $9,000, and gets back $4,000. Effective tax rate: 10%

    Family D makes $150,000, spends $125,000 (saves $25k), pays $25k and gets back $4k. Effective tax rate: 14%

    You get the idea. Seems to avoid the regressive problem of usual sales tax systems putting a higher relative burden on the poor.
  • I agree that taxation can be an effective disincentive for certain activities. That idea is put into place for gas taxes, cigarette taxes, liquor taxes, etc. and I have no problem with those. However, keep in mind that if the disincentive that the government is pushing works, then the government's stream of tax revenue will disappear. For example, if cigarettes are taxed enough, people will stop smoking, and taxes won't be collected on those anymore. Thus, there needs to be taxation for a purpose other than a disincentive.

    In my mind, another purpose taxes can serve is to help create an equal opportunity for all by counteracting the creation of perpetual rich and poor that our capitalist system naturally pushes towards (i.e. those with money can use that money to generate more money, while those without continually struggle to make ends meet). This can be accomplished via income taxes and estate taxes to help redistribute money so that everyone has an equal chance to become wealthy. Income taxes and estate taxes therefore are not meant to punish the successful, it's meant to avoid the creation of a permanent bourgeoisie and proletariat.
  • Dave0 wrote:
    I agree that taxation can be an effective disincentive for certain activities. That idea is put into place for gas taxes, cigarette taxes, liquor taxes, etc. and I have no problem with those. However, keep in mind that if the disincentive that the government is pushing works, then the government's stream of tax revenue will disappear. For example, if cigarettes are taxed enough, people will stop smoking, and taxes won't be collected on those anymore. Thus, there needs to be taxation for a purpose other than a disincentive.

    Washington has the 2nd highest liquor taxes in the country yet is in the 3rd quartile for consumption (4th quartile being the highest)

    It appears that in this case taxes are not such a disincentive, but just a nice business for the state
  • Dave0 wrote:
    Thus, there needs to be taxation for a purpose other than a disincentive.

    I think you misunderstood me. I don't think taxes should be used as a disincentive for anything. I'm just noting that taxes naturally have that side effect and since we can't do anything about it (since we need some form of government and it needs to be funded in some way) we should collect taxes on things that are "less important".

    I think though, we have a fundamentally different view of taxes that causes us to disagree on where they should be collected from. I believe that taxes are a necessary annoyance for funding essential government activities. You see taxes (and tax breaks) as not only providing funding for the government, but as a way for the government to tweak the behavior of individuals and the social order of the population.
  • . This can be accomplished via income taxes and estate taxes to help redistribute money so that everyone has an equal chance to become wealthy.

    And yet estate taxes are based on income which has already been taxed.I'm usually in the camp of left leaning tax the rich, but estate taxes are double taxation.
  • ira s wrote:
    . This can be accomplished via income taxes and estate taxes to help redistribute money so that everyone has an equal chance to become wealthy.

    And yet estate taxes are based on income which has already been taxed.I'm usually in the camp of left leaning tax the rich, but estate taxes are double taxation.

    Based on that logic, there's lots of double taxation going on. Say I were to buy real estate. I'd be using money that the fed has taxed through income taxes to buy the house, and then property taxes would be charged against that money. Does that mean that property taxes are double taxation?

    Every time you go shopping, you are using after-tax dollars to buy goods and services, yet you still have to pay sales tax. Does that mean sales tax is double taxation?

    Let's follow $100 through the economy: I earn $100, federal income tax takes away $25. I use the remaining $75 to buy something at the store. $7.50 goes to sales tax. The retailer also pays $1 in B&O tax. The remaining $66.50 goes towards paying someone's wage. Thus, another $17 gets taken away by federal income tax, leaving $49.50, and so on. Double taxation happens all the time. It's not necessarily a bad thing, it just means taxes are being collected from more than one method.
  • The Tim wrote:
    The beauty of the Fair Tax is in the flat rebate. You don't need any specific item exemptions or dollar amount exemptions, or anything. It's so beautifully simple.

    Once again, people below the income threshold actually make money in this system, people at the threshold pay no tax.

    Example:
    Say we have a sales tax rate of 20% and put the no tax threshold at a yearly income of $20,000, therefore the yearly rebate is $4,000. We'll assume the low-income families spend 100% of their income.

    Family A makes $10,000, pays $2,000 in sales tax at the time of purchase, but receives $4,000 "back" split into a quarterly (or monthly) basis. Effective tax rate: negative 20%

    Family B makes $20,000, pays $4,000 in sales tax at time of purchase, and receives it all back through the rebate. Effective tax rate: 0%

    Family C makes $50,000, spends $45,000 of it (saves $5k), pays $9,000, and gets back $4,000. Effective tax rate: 10%

    Family D makes $150,000, spends $125,000 (saves $25k), pays $25k and gets back $4k. Effective tax rate: 14%

    You get the idea. Seems to avoid the regressive problem of usual sales tax systems putting a higher relative burden on the poor.

    As long as kids don't count for the $4000 until they have a real job (i.e. are 16 and employed), this would actually be a good system.

    The problem, as I sarcastically mentioned before, is that the in-power party would never leave it alone. You're getting rid of child tax credits, mortgage interest deductions, and thousands of other stupid credits/deductions.
  • Dave0 wrote:
    I'd be all for a state income tax as long as it replaced the sales tax. An income tax is much better for society than taxing sales.

    If you buy that taxes can serve a dual purpose as revenue stream and disincentive, and if you accept that the problem we witnessed over the previous 10+ years was too much consumption, then perhaps a sales tax is exactly what this state and country needs right now. Encouraging saving or investing doesn't sound like a bad idea right now.

    Anyways, I think sales tax is far less unfair than perhaps it seems.

    1) Three of the largest budgeted costs for the poor (rent, food, insurance) are not taxed.
    2) Probably the other largest monthly cost (auto) harms the poor mostly due to the fact that many people buy too much car.
    3) Gasoline tax does unfairly harm the poor. We really should keep this (increase it drastically actually) as it discourages oil consumption. This is one case were at a minimum Tim's fair tax should really be applied. If someone used little enough fuel, they could actually make money off of it.

    FWIW, I'm becoming less optimistic that there is really that much we can do to help that lowest 20% as a group be better off in any systematic way. Those people generally just lack financial knowledge. They need to be registered in classes (by and large) far more than they need tax relief.
  • I strongly disagree that estate taxation is "double taxation." Especially when the estate tax threshold is so high, and there are also reasonable exemptions. So few, other than the very, very wealthy, are even subject to it. This taxes the UNEARNED transferred wealth of HEIRS, one time, not the original earner(s), who cannot take it with them... So, by definition, it is NOT double taxation. Very few of those on this board would even be subject to it.

    Trust fund babies and heirs will still survive quite well, and the large amount of money left over after the one time tax is more than adequte to provide for the heirs. I won't get into the socio-economic reasons this is necessary as well.

    As for the State income tax, the proposal DOES provide for a reduction of the sales tax, as well as property taxes and a cap on assessments. If they threw in an exemption on the first 50K of income, with a Constitituional cap on increases, I bet it would pass. As it stands, relying on sales taxes and fees is a boom/bust dependancy, and is likely a major reason revenues are not predictable, and difficult to make any kind of a realistic budget for programs.
  • BTW, reliance on regressive sales taxes also put a disproportionate burden on the poor to spend what they don't really have on those other necessities of life: clothing, health care items, and transportation.
  • I say HELL YES to a progressive state income tax. About time we taxed the Republican assholes into oblivion.

    Also institute a luxury sales tax on the Republican assholes who buy $70K BMWs.
  • I strongly disagree that estate taxation is "double taxation." Especially when the estate tax threshold is so high, and there are also reasonable exemptions. So few, other than the very, very wealthy, are even subject to it.

    Although the federal estate tax threshold is high ( 2 million?), many states have their own inheritance or estate taxes with much lower thresholds, and some of those states count the value of houses.
    It may not be the same people paying the taxes twice, but the people who had the money and died had that money taxed as they earned it, and when it's inherited it gets taxed again.
    Don't get me wrong. I'm ALL in favor of taxing the rich.
  • I say HELL YES to a progressive state income tax. About time we taxed the Republican assholes into oblivion.

    Also institute a luxury sales tax on the Republican assholes who buy $70K BMWs.

    What about the Democratic assholes who buy $70k BMWs?
  • Also institute a luxury sales tax on the Republican assholes who buy $70K BMWs.


    What about the Democratic assholes who buy $70k BMWs?


    No, that would be the Volvo Tax....
  • I don't know why they ever got rid of the "luxury tax". I understand they dropped it for yachts over a decade ago and reduced it significantly (if not dropped completely) for cars over 35 or 40k...whatever it used to be.

    Not only should yachts and luxury cars be taxed up the yin yang but ultra high end watches, artwork, clothing, spirits, audio gear, and any other toys that only the top .0000001 play with.

    Don't worry. The people I'm thinking of certainly aren't here on the SB...so no need to get defensive. They're on their superyacht in Monaco right now and will do juuuuust fine....even if their next Yacht/Picasso/Bentley etc. costs more than the last one.
  • EconE wrote:
    I don't know why they ever got rid of the "luxury tax". I understand they dropped it for yachts over a decade ago and reduced it significantly (if not dropped completely) for cars over 35 or 40k...whatever it used to be.

    Not only should yachts and luxury cars be taxed up the yin yang but ultra high end watches, artwork, clothing, spirits, audio gear, and any other toys that only the top .0000001 play with.

    Don't worry. The people I'm thinking of certainly aren't here on the SB...so no need to get defensive. They're on their superyacht in Monaco right now and will do juuuuust fine....even if their next Yacht/Picasso/Bentley etc. costs more than the last one.

    Unintended consequences.

    With yachts, people stopped buying American made yachts and instead bought an Italian or Dutch made yacht to circumvent the luxury tax. With cars, people started doing the European delivery to avoid the luxury tax, though they still had to pay state sales tax when they first registered the car.

    Almost every industry that was hit with the luxury tax saw a decline in American employment. The tax itself failed to live up to its revenue model because it was so easy to not pay it. While it seems like a good idea on paper, it is really lousy in practice.
  • Unintended consequences.

    With yachts, people stopped buying American made yachts and instead bought an Italian or Dutch made yacht to circumvent the luxury tax. With cars, people started doing the European delivery to avoid the luxury tax, though they still had to pay state sales tax when they first registered the car.

    Almost every industry that was hit with the luxury tax saw a decline in American employment. The tax itself failed to live up to its revenue model because it was so easy to not pay it. While it seems like a good idea on paper, it is really lousy in practice.

    One major difficulty with taxing the richest 0.001% is that those guys are really sneaky bastards. :D
  • EconE wrote:
    I don't know why they ever got rid of the "luxury tax". I understand they dropped it for yachts over a decade ago and reduced it significantly (if not dropped completely) for cars over 35 or 40k...whatever it used to be.

    Not only should yachts and luxury cars be taxed up the yin yang but ultra high end watches, artwork, clothing, spirits, audio gear, and any other toys that only the top .0000001 play with.

    Don't worry. The people I'm thinking of certainly aren't here on the SB...so no need to get defensive. They're on their superyacht in Monaco right now and will do juuuuust fine....even if their next Yacht/Picasso/Bentley etc. costs more than the last one.

    Unintended consequences.

    With yachts, people stopped buying American made yachts and instead bought an Italian or Dutch made yacht to circumvent the luxury tax. With cars, people started doing the European delivery to avoid the luxury tax, though they still had to pay state sales tax when they first registered the car.

    Almost every industry that was hit with the luxury tax saw a decline in American employment. The tax itself failed to live up to its revenue model because it was so easy to not pay it. While it seems like a good idea on paper, it is really lousy in practice.

    I can see what you mean. Must be a real pain in the ass for those guys to have to fly all the way to Italy on their private jets to check on the progress of their yachts construction. :roll:
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