Caldwell: I-1098 is not a business-friendly tax option

Nobody out here in Eastern Washington likes to admit it, but King County is the great trough from which most of the rest of us feed.

Initiative 1098 is a great opportunity to increase our caloric intake.

Seattleites and their neighbors up to the Cascade Divide contribute slightly more than 40 percent of all state revenues. That’s from about 28 percent of Washington households, albeit those with two Beemers in the garage.

The income tax proposed in I-1098 would have the state reaching still deeper into their pockets. The levy would collect 5 percent of individual income above $200,000, and more than $400,000 for couples. North of $500,000 for individuals, or $1 million for couples, and the rate goes to 9 percent.

The initiative also provides for a 20 percent reduction in state property taxes, and an increase in the business and occupation tax credit to $4,800, which would exempt about 85 percent of Washington businesses, and reduce the rate for others.

The net result would be about $11 billion in additional revenues to the state over the five years following implementation of the tax in 2012.

And guess who pays? Our King County benefactors, of course.

According to a pie graph posted by the Sightline Institute in Seattle, 57 percent of those with incomes above the tax threshold live in that county. Only 11 percent live in Eastern Washington.

This is as close as it gets to a free ride for those of us on this side of the Cascade curtain.

But is this a ride we want to take, or even need to take?

There’s no denying Washington’s tax system is among the most inequitable. In fact, according to a study released in November 2009 by the Institute for Taxation and Economic Policy, Washington has the most upside down tax structure of all the states.

The poorest 20 percent of non-elderly residents pay 17.3 percent of their incomes in taxes. In Idaho, the share is less than one-half that; 8.6 percent.

The culprit, of course, is a 6.5 percent state sales tax on which counties heap as much as 3 percent more. Property taxes take another 4.2 percent of low incomes.

But I-1098 does not provide for sales tax relief. And that 20 percent property tax break? Landlords will take that, and thank you very much, because rental income will be subject to income tax. Tenants, disproportionately low -income, will not see a dime’s worth or lower rents.

Nor do small-business owners think an increased B&O tax credit will offset the hit from an income tax.

A survey done for the Association of Washington Business found the number who expected a hit from the new tax far exceeded those who would benefit from the B&O credit. Almost two-thirds oppose I-1098.

Many said they would slow hiring, cut salaries, reduce investment and, at the extreme, pull up stakes and move out of Washington.

State officials perpetually fight perceptions Washington is anti-business, and high-tax. The state is neither. Using 2008 numbers from the Census Bureau, the Department of Revenue calculated the state and local tax burden was $105.49 for every $1,000 in income – 30th highest among the 50 states. Per capita taxes are $4,354, 16th highest.

Not stellar, but not awful.

And in another study the Small Business and Entrepreneurship Council ranked the state fifth best for entrepreneurs and small business, based on 16 tax measures.

The sales tax is a problem. Right now, revenues are a problem, but states that rely on an income tax are subject to the worst fluctuations in revenues, not the least.

Setting taxes by initiative is never a good idea. The November ballot includes several and, if past experience tells us anything, the results will be contradictory.

All should be defeated. But hey, vote for I-1098 if you like. It’s not our money.