Move to ban state income tax fails in Senate; Tax Foundation reports on how federal tax reform could impact states

Washington has neither a personal nor a corporate state income tax. Voters have repeatedly rejected it, since last passing it in 1932. Yet every few years, it seems another attempt to adopt one comes along, as we noted last week.

Yesterday, the state Senate considered a measure to send a proposed constitutional amendment to the voters to place a specific ban on income taxes in the constitution. Though it received a simple majority, it fell short of the supermajority required to propose an amendment to the constitution.

The Associated Press explains:

Senate Joint Resolution 8204 failed in the Republican-led chamber because 27 senators voted in support, short of the 33 votes needed.

Constitutional amendments require a two-thirds vote in the Senate and House before they can be sent to the ballot for a public vote.

 The supermajority in favor of SJR 8204 in the Senate was always unlikely. In the House, its chances would have been vanishingly thin. 
But it does give us a chance to call attention to a new Tax Foundation report that points up some of the challenges faced by states with income taxes. As Congress considers federal tax reform, income-tax states have to contend with changing rules.
Tax policy wonks may be interested in the entire report. Here are the “key findings” as stated by the Tax Foundation:
  • Congress is considering comprehensively reforming the federal tax code. Leading proposals include the GOP Blueprint offered by House Republicans and the campaign tax plan put forward by President Trump. The plans share a number of similarities, but vary in terms of how they would change federal tax bases.
  • States, for administrative simplicity for both the state and taxpayers, tend to tie their tax codes to the federal tax code. Because of this conformity, changes made to federal definitions, such as adjusted gross income (AGI), influence the revenue that states collect.
  • Twenty-seven states use federal AGI as their income tax base, six states use federal taxable income, and three states use gross income. Forty-one states conform to federal definitions of corporate income, either before or after net operating losses.
  • State individual income tax revenues would likely increase due to the large base expansion occurring at the federal level, but revenue changes from corporate income tax modification is less straightforward. However, the magnitude of revenue of the individual income tax changes would likely be larger than any possible revenue losses from corporate income tax reform.
  • States have a number of options available to react to any revenue impacts from federal tax reform, such as phase-ins, tax triggers, and contingent enactment clauses. States can also look at ways to reform their tax codes in tandem to further mitigate any deleterious effects. Federal tax reform presents an opportunity for states to consider ways to improve their own tax structures, as was the case with the 1986 federal reforms.

There’s very little that’s simple when it comes to tax reform. In this area, at least, Washington’s tax structure makes the state a less affected by the contemplated federal action than many other states. You decide whether you think that’s good or bad.

 UPDATE: More on the state Senate vote at The Lens.