The Reykdal Plan To Fix Our Broken Tax System
Washington State has the most regressive tax system in the United States. Study after study places our state at the bottom for Tax Progressivity. We overtax the middle class, poor, and small businesses to the benefit of very wealthy individuals and corporations in our state.
After years and years of our failed tax policy some large social injustices have emerged:
• Consider the growing wealth disparity:
-The wealthiest 20% have increased their control of total income from 50% to over 55% (SEE: Footnote 1). In Washington State that represents a shift of $12 billion annually from the many to the few.
-The top 1% of income earners now earns 20% of total income.
• Washington’s tax system further rewards the concentration of wealth:
- Washington State’s tax structure taxes the top 20% of earners at less than 5% of their disposable income, while taxing the lowest 20% at over 15% of their disposable income (SEE: Footnote 2).
• Our failed tax system is jeopardizing our public services and public employees:
- State and local government services have shrunk from 12% of total State Gross Domestic Product to less than 10% of total State GDP (SEE: Footnote 3). Returning to even the 40-year average of 10.6% of State GDP would put back $2.3 billion annually in critical State and local government services.
• Our failed tax system is now at a crisis stage with services being devastated and public employees sharing a disproportionate burden of the pain; as proof:
- At the worst of our recent economic crash, total personal income and total economic activity in the U.S. and Washington only fell 1.5% (SEE: Footnote 4). Yet, state government revenue shrunk 10% in that time, and budget cuts exceeded 10% year-over-year.
• Public employees are being laid off; furloughs have begun; and employees’ share of health benefits and pension contributions will soon rise if we don’t turn this around.
The Reykdal Plan:
1) Stimulate job growth and reward locally grown small businesses by eliminating the B&O Tax for the first $1 million in gross sales. This will significantly help small home-grown local businesses to start up and expand.
2) Cut the state-portion of the property tax by 20% over the next biennium and up to 50% by 2013-15.
3) Institute a high earners income tax: 5% rate on individuals earning more than $200,000 or couples earning more than $400,000. Step the rate to 9% for individuals over $500,000 or couples earning more than $1 million.
4) Institute a corporate income tax of 5% on profits above $1 million. This is profit only and accounts for deductions from costs such as salaries, benefits, and pensions. In other words, the better the benefits that a business offers its employees, the lower the tax burden!
5) Eliminate outdated tax loopholes currently offered to big oil, big banks, and targeted industries whose tax breaks have no proven benefit to Washington’s taxpayers. Our state currently has over 500 tax loopholes on the books, some of which have existed since the 1930’s.
6) Increase the Hazardous Substance Tax to 2% and dedicate these funds to Puget Sound Clean up, oil spill prevention, and storm water collection projects.
7) Index motor vehicle fuel taxes annually by the rate of inflation (Seattle CPI) to ensure that we have adequate funds for congestion relief. Makes these dollars available for all congestion relief efforts including highways, rail and other means of public transit. This would require a constitutional amendment, but it is essential and should in turn be sent to the voters.
This combination of targeted tax reductions and targeted tax increases will provide immediate relief to small businesses, middle- and low-income families and it will provide much needed stability in our tax code. With this approach, we will generate new revenue for schools, health care, congestion relief, and environmental protection. Furthermore, this approach creates meaningful progress in achieving the three core pillars of a healthy tax code: Tax fairness, revenue stability, and revenue adequacy.
It’s time to take on our biggest challenge. We can talk about generating job growth, investing in education and protecting the environment, but unless we aggressively reform our tax system in Washington State, “talk” is all we’ll get.
Let’s build a coalition to lead Washington State to a more solid and stable financial future.
FOOTNOTES:
1 U.S. Census Bureau, The Changing Shape of the Nation’s Income Distribution, June 2000
2 Tax Alternatives for Washington State: A Report to the Legislature, November 2002
3 Bureau of Economic Analysis, Regional Economic Accounts, Gross Domestic Product by State
4 Washington Economic and Revenue Forecast Council, February 2010 Forecast, Appendix: Detail Components