Passage of I-976 has led to some unanticipated (at least by us, though we should have seen it coming) discussion of … wait for it … the need for comprehensive and progressive tax reform. The story goes something like this: Car tabs are regressive and fall heaviest on lower-income taxpayers who are already proportionately overtaxed in Washington. Voters may have been inclined to oppose I-976 were they not so desperate for tax relief. Some go further, arguing that a better way of funding government services, including transportation, would have spared us the disruption that I-976 threatens. (As we wrote yesterday, the measure is currently facing a court challenge.)
The Washington Research Council has rounded up a representative sample of the arguments for progressive tax reform in the wake of the election. And, it provides some important information that runs counter to the we-need-tax-reform-now narrative. We recommend reading the WRC’s post.
WRC analyst Emily Makings notes one commentary, which is particularly relevant to the coming conversation.
In her column, Wilson claims that “Washington is a ‘low tax state’ in terms of revenue collected (hence our trouble funding basic services), but for low-income families it’s the highest-tax state in the country.” These revenue claims originate with a report from the Institute on Taxation and Economic Policy (ITEP); we wrote about the problems with that report’s methodology here. (Incidentally, one of the problems is that ITEP overestimates the extent to which Washington’s B&O tax is shifted onto lower-income taxpayers—ITEP treats our B&O tax as a sales tax that is borne by consumers. This overstates the regressivity of Washington’s system compared to other states. In ITEP’s analysis, the indirect burden of sales and excise taxes on business that is borne by Washington households in the lowest quintile is higher than the burden of retail sales taxes these households pay directly.)
Further, Washington is neither a low-tax nor a low-spending state. In 2017 (the most recent state and local data available), Washington’s state and local taxes per capita were $5,342—13th highest in the country and above the national average of $5,073. Washington’s state and local taxes as a share of personal income were 9.7 percent (up from 9.5 percent in 2016). By this measure, our taxes ranked 30th.
(Moreover, the state has increased taxes significantly in recent years that aren’t yet fully realized in the data, given the lag. For example, the McCleary state property tax and the various tax increases adopted earlier this year aren’t included.,,)
Again, read the post. We are disappointed that I-976 passed and we believe the legal challenges have merit. Regardless, however, passage of the initiative should not be the occasion to launch yet another campaign for progressive tax reform based on misinformation.