Guess what? Washington state’s taxation system continues to be one of the most regressive in the country.
This news comes from the Institute on Taxation and Economic Policy (ITEP), which did a deep dive into the taxation policies of all 50 states. As in previous editions of the report, Washington bottomed out. The institute found that people in the bottom 20 percent of incomes in Washington state pay 17.8 percent of their income in taxes compared with the 3 percent paid by the richest Washingtonians.
These numbers look worse than those in previous reports, but researchers caution that it’s inaccurate to make direct comparisons given changes in methodologies between editions.
“There is a ton of temptation for us to compare one ‘Who Pays’ report to another ‘Who Pays’ report,” said Meg Wiehe, deputy director of ITEP.
Either way, low-income people in Washington continue to pay a higher share of their income than rich people in the state. Part of that has to do with how the state raises tax dollars.
Governments in Washington are uniquely starved of tax dollars due to the fact that the Legislature prevents localities from collecting income tax. That law built upon a Washington State Supreme Court decision in the 1930s says that the uniformity clause in the Washington constitution meant that no property could be taxed at different rates.
That concept has meant that, up to now, even if an income tax was passed, it couldn’t be graduated, meaning that people would have to be taxed at the same rate no matter their income.
That is different from how federal income taxes are collected.
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The city of Seattle is currently fighting a legal battle to impose a modest 1.5 percent income tax on the city’s highest earners. Otherwise, Washington really hasn’t done much to fix its broken taxation system, said Misha Werschkul, director of the Washington State Budget and Policy Center.
“We continue to rely on extremely regressive sources of taxation, particularly sales and business and occupation tax,” Werschkul said. “It really is clear compared to other states that we are collecting our revenue in an inequitable manner.”
Property taxes and sales taxes are regressive, but Washington governments rely on them to fund basic services. The state doesn’t have an income tax, nor does it have a capital gains tax. That is rare for an economy with a robust technology and start-up culture.
That means there’s a missed opportunity when it comes to taxing wealthy people, Wiehe said.
“It’s not just asking them to pay more. It’s about how much you’re leaving on the table,” she said.
Compared with a state like California, which does put an additional tax burden on wealthy people and capital gains, Washington is hurting for revenue.
The state has languished for years under a court decision that declared it wasn’t properly funding K-12 education. There are more than 40,000 homeless students who are supported by less than $1 million in federal funding and roughly $4 million from Washington state. Recent changes to the property tax system may make it harder to fund basic school services in the future. Much like other states on the West Coast, there is a housing crisis that is forcing up rent, particularly for people who are competing for non-luxury apartments.
All of this conspires against low-income people.
Advocates are hoping to change the system to open up other avenues for revenue. In the meantime, there are ways under existing law that the state could raise revenue and reduce the tax burden on the poorest residents.
Those include a capital gains tax and funding an existing program that would give a tax rebate to working families. The program already exists, Wiehe said, but no one has ever received a check.
“There are no constitutional barriers to funding that and making that available,” Wiehe said.
Ashley Archibald is a Staff Reporter covering local government, policy and equity. Have a story idea? She can be can reached at ashleya (at) realchangenews (dot) org. Follow Ashley on Twitter @AshleyA_RC
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