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Monday, November 12, 2007

Gov. Gregoire Missing Golden Opportunity for Real Tax Reform

posted by on November 12 at 9:23 AM

During last year’s legislative session in Olympia, the Democrats flirted with the idea of codifying Tim Eyman’s 1-percent-property-tax-cap into state law. (At the time, Eyman’s rule—passed in 2001 as I-747—was before the Washington State Supreme Court.)

I bitched at the Democrats for considering the move. 1) Why hand Eyman a victory? And more important: 2) If constituents were still complaining about property taxes, than obviously, 747 (in effect since ‘02) wasn’t solving the problem. And no wonder—it’s a regressive tax, with the lowest bracket paying 6 percent of their annual income in property taxes while the top notch pays just 2.8 percent.

Now that the Court has tossed 747, the supermajority Democrats have a chance to leave Eyman’s pseudo-populist fix in the dust, and enact real property tax reform for the masses by tying increases to income. (A more mainstream Democratic alternative would tack increases to inflation, so that the government can maintain service levels. However, that fix doesn’t address the taxpayer side of the equation.)

I discussed the income-based idea last session:

The idea works like this: When property tax bills reach a certain percentage of a homeowner’s income, they get a tax credit. The proposal developed by the Budget and Policy Center is, they claim, revenue neutral and would give the poorest 20% of homeowners a 14.9% tax cut; the next 20% would get about a 12% cut; the middle 20% would get a 1.9% cut; and the top 40% would see a 2% increase.

The legislature didn’t end up doing anything last session, but I hoped the Democratic majority would move on it this year. And now, thanks to the Court, they have the opportunity….

Unfortunately, Gov. Gregoire is all set to pull a Gov. Gary Locke. (Remember when Locke caved and instituted Eyman’s 695 car tab limit and voter approval for taxes mandate after that one was declared unconstitutional.)

On Friday, she announced she’s going to push legislation to put 747 on the books.

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Josh, She is scared of Rossi in the election next year. She knows she has been lackluster as a gov. and even though she is ahead in the polls people are not that committed to keeping her on. This is a reactionary political move to pacify the anti-tax crowd.

Expect more of this. For her, it beats being a leader... Rembmer that more people voted for Kerry in 2004 in Washington than voted for Gregoire in 2004.

Posted by Just Me | November 12, 2007 9:34 AM

It's called political backbone. And the last person you cave to is Tim Fucking Eyman.

You know, maybe the initiative process isn't such a good idea - issues brought before a shitload on uninformed voters who are anti-tax, anti-school, anti-everything as far as I can tell (except firemen and Harborview). Why the fuck, then, do we have legislators?

Posted by Bauhaus | November 12, 2007 9:40 AM

and enact real property tax reform for the masses by tying increases to income.... The idea works like this: When property tax bills reach a certain percentage of a homeowner’s income, they get a tax credit. The proposal developed by the Budget and Policy Center is, they claim, revenue neutral and would give the poorest 20% of homeowners a 14.9% tax cut; the next 20% would get about a 12% cut; the middle 20% would get a 1.9% cut; and the top 40% would see a 2% increase.

We don't want an income tax here in WA - even if you jump through spectacular hoops in order to call it a "property tax credit".

Posted by JMR | November 12, 2007 9:40 AM

In addition, I personally have perceived Gregoire to be a bit anti-Seattle in her lackluster first term. Do other people share that perception? I suppose she doesn't want to be seen "pandering" to the state's largest city, an effort to secure votes in the rest of the state. Yet, ironically, it's King County and Seattle that got her into office in the first place...

On the tax issue, here's a tax reform that no one talks about: B&O tax. Most people don't know about it or care about it because they don't pay it directly, although the legions of self-employed people (freelancers, small business owners, everyone from latte stand operators, house cleaners, and 7-11 franchisers upward has to pay it) know and despise it; it's one of the biggest obstacles in this state to starting a new business or going freelance. (It's based on gross receipts, so even if you are losing money you still have to pay tax.)

It functions basically as a "secret income tax." All of you are paying for it but never see it deducted since your employer has to deal with it instead of you.

Since we're all paying what amounts to an income tax anyway, then, why not shift to an authentic income-tax system (which would ease pressure on startups and freelancers) while reducing the sales tax and adding mileage-driven taxes on vehicles?

Posted by S. M. | November 12, 2007 9:47 AM

"pandering to the state's biggest city" Gee, I am sure that the Govs of NY and IL would NEVER pander to NYC and Chicago.

She better start putting out, time politicians realize WE are the Pimps and THEY are the whores. It is NOT the other way around.

Posted by Just Me | November 12, 2007 9:57 AM

I'd heard from an attorney who specializes in Washington state taxes that a progressive property tax (or income tax for that matter) would require a constitutional amendment. Article VII of the state constitution requires "All taxes shall be uniform upon the same class of property..." Maybe Josh could research this more?

Posted by dat | November 12, 2007 10:06 AM

B&O is a sales tax. It is on all sales just not added to price it is already in the price. Except for services the tax is less than 1/2 of a percent. There are no other direct taxes on businesses in the state. Even businesses that make no money use the infrastructure provided by the public sector so a small payment seems fair. And what is the business rating of the state? #5

BTW if we had an income tax the businesses would have to pay their people more no make up for it.

Posted by whatever | November 12, 2007 10:15 AM

Yes a progressive income tax would take a constitutional amendment. The only way it could work would be to eliminate or severely limit sales tax and maybe the dreaded MVET.

Posted by whatever | November 12, 2007 10:19 AM

Josh have you ever even seen a property tax bill? Much less paid one. I can assure you that homes in Seattle have had much morethan a 1% increase per year since 747.

Perhaps putting renters share of prop tax on their monthly bill would change votes. And how would rental units tax rates be calculated?

Posted by whatever | November 12, 2007 10:31 AM

@6 and @8 are correct, Josh. You can sit in your little bubble and yell "progressive, progressive, progressive!" all you want, but a Constitutional amendment for a graduated state income tax needs a two-thirds vote in the House and a two-thirds vote in the Senate -- and then it has to go to the voters --where the outcome, at best, is uncertain.

We agree that it should be done. Your tiresome little hissy fits against the Democrats who can't provide you with instant gratification -- BECAUSE THE VOTES ARE FUCKING NOT THERE -- do not help get it done.

Posted by ivan | November 12, 2007 10:33 AM

@9, renters DO pay property tax. It is part of the rent they pay. When property tax goes up so does the rent.

Posted by Just Me | November 12, 2007 10:34 AM

Just Me are you a renter? If so what is your property tax per month? Rents pay the property tax but rents don't necessarily go up and down with the tax. Supply and demand for units determine the rent level. If a glut of apartments appear and the prop tax goes up, rents will still go down.

Posted by whatever | November 12, 2007 10:50 AM

@12: That's how things work in a free market system. Nevertheless, renters are still paying a portion of the property tax in their rents.

Suppose that a landlord raised rents enough to completely cover the property tax share for each renter. In theory, quantity demanded would be reduced, causing both parties to pay some of the tax.

Posted by Greg | November 12, 2007 12:10 PM

@ Whatever. When property taxes go up I pass those charges onto the rents when leases come up for renewal. I distribute the increase among all the rental units I have.

Posted by Landlord | November 12, 2007 12:16 PM

Greg of course in some way renters pay all costs. At least that's what the landlord wants, but if he raises the rent and gains a vacancy, he pays a whole lot of the tax.

Many landlords get what the market will bear which has no direct relationship to property tax increases. Rents have been going up much more than property taxes - property taxes will influence whether investors buy or build units and in the longer term will impact supply and therefore rental rates.

Landlord did you really raise the rents by 3%? If you had vacancies and the prop tax went up would you really try to raise rents on your remaining tenants? If taxes don't go up do you not raise rents in a hot market?

Posted by whatever | November 12, 2007 12:39 PM

I'm not sure how a work-at-home freelancer or a sole proprietor "uses the infrastructure" but still has to pay B&O on gross, and not net, receipts...

Posted by Auckey | November 12, 2007 1:35 PM

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