Shawn Vestal: Legislature considers sales-tax refunds for Washington’s poor

It was a brief moment of levity in a long, dry legislative hearing.

Drayton Jackson, an advocate for homeless and poor people from Bremerton, had come to a Olympia committee room to encourage legislators to support a proposal to give impoverished Washingtonians a small but significant sales-tax refund. The proposal would be one way to help balance this state’s radically imbalanced system of taxation.

Jackson told the members of the Senate Ways and Means Committee a story about how hard he and his wife had to work and scrounge through their budget to afford a $287 car repair.

“So I say to you today,” Jackson said, “look at us like a big corporation. We need a tax break, and the workers family bill will give us that.”

His remarks were followed by a brief smattering of applause and some laughter. The committee chair, Sen. Christine Rolfes, the Bainbridge Island Democrat, noted, “We don’t usually allow people to clap, but there was general agreement that that was a good joke.”

Good for its truth as much as its comedy, perhaps. When compared to the taxpaying woes of the rich, the taxpaying woes of the poor get too little consideration in Washington state. Our system of taxation – due primarily to the effective demonization of the income tax and the resulting over-reliance on the sales tax – hits poor people the hardest. We frequently rank last among all states in evaluations of tax fairness.

Jackson and others who testified before the committee last week were there to support a bill that would give a small sales-tax refund to residents, based on those who qualify for the federal earned income tax credit. There are now proposals in both chambers – Senate Bill 5810 and House Bill 1527 – with scads of co-sponsors.

The Working Families Tax Credit would also expand eligibility for the tax refund to some people who don’t qualify for the EITC, such as the working poor without kids, students who qualify for the State Need Grant, and family caregivers.

“Essentially, it’s a way to put a significant amount of money back into the pockets of Washingtonians who need it the most,” said Kelli Smith, a senior policy analyst with the Washington State Budget and Policy Center, a liberal nonprofit that advocates for economic and social policies.

The devil on this particular proposal – its affordability, chiefly – remains in the to-be-finalized details and cost estimates. Smith said the Budget and Policy Center estimates that a program targeting about 1 million Washingtonians, providing an average refund of $350 and a maximum one of $970 for a family of five, could cost between $350 million and $400 million.

In Spokane County, more than 37,000 families qualify for the EITC; more households here would qualify for the state sales tax refund – because of the expanded eligibility – but it’s not certain how many more.

Some early cost estimates from the legislative staff are expected to come in much higher than the center’s; Smith said that’s a result of different sets of estimates and calculations in the note. She hopes that what she sees as a more accurate evaluation of the costs will emerge.

In a year in which lawmakers are facing a big ask on trying to improve mental health care, the cost of the program will obviously be a significant factor for its potential survival. A similar effort to help offset the state’s regressive tax system was passed in 2008 – and immediately ran into the budget-cutting mandates that followed the financial crisis. Smith and other anti-poverty advocates hope this year will be different.

The federal EITC is a mechanism that anti-poverty advocates have long praised as one of the most effective tax policies for improving the lives of poor Americans.

Elaine Maag of The Urban Institute, a Washington, D.C., think tank that focuses on economics and social policy, published a critique of the 2017 congressional tax cuts in which she argued that those cuts, heavily weighted toward the wealthy, did too little for the poorest Americans because they did not substantially expand the EITC or the child tax credit.

“This approach of providing little or no additional benefit to lower-income families runs contrary to a growing body of evidence showing that increasing incomes for families with disadvantaged children can result in a lifetime of benefits,” Maag wrote in the July 2018 paper.

Maag and others are calling for expanding the federal tax credits, including raising the benefit and widening eligibility to include, among others, low-income workers without children, whom Maag called “the lone group of people taxed into poverty rather than being lifted out of poverty by tax benefits.”

Some 28 states have been providing refunds of sales taxes tied to the EITC, as the Washington legislation proposes, Smith said.

The average benefit may not sound like much. Smith, who testified last week alongside Jackson, said that’s just not true for the people who would benefit.

“We’ve gotten a lot of questions – ‘$350? That’s not that much,’ ” she said. “What we say is that’s not what people who would qualify for this are telling us.”

The Working Families Tax Credit has some legislative working-out to go through, and some further specificity will be necessary before it can become a reality. But it is a rightside-up proposal in a state where tax policy, as the Budget and Policy Center frequently says, is upside-down.

Even if it’s not aimed at big corporations.