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Lawmakers should repair state's entire tax system

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By John Burbank
Published:
Thursday the governor is convening the Legislature for a special session to enact into law Initiative 747, which was recently overturned by the Washington State Supreme Court.
Just what did Initiative 747 do? It capped tax increases on total current property in a taxing district at 1 percent, regardless of inflation and population growth. Since it was approved in 2001, fire districts, city and county governments, and other local jurisdictions have lost about $1.6 billion. This is revenue that could have paid for police, firefighters, libraries, roads, schools and public health. That translates to about 3,500 public health nurses, police, teachers, and firefighters across the state, missing in action every year thanks to Initiative 747. It is no wonder that we worry about our own safety, our kids' schools, and roads full of potholes.
If the Legislature votes to put Initiative 747 back into law, and the governor signs that bill, they will be parties to handicapping public services. Under Initiative 747, total current property tax resources won't even be allowed to keep up with inflation, except by a vote of the people for each minor addition to that tax. Of course, at the same time, we want to improve our schools, build better roads, open up a new UW branch campus in Everett, and root for a winning Husky football team next year. Each of these is about as likely as the last, if we starve public resources for our state.
To give it its due, the Legislature may also consider a measure that would enable homeowners making below the median income -- about $57,000 -- the opportunity to defer 25 percent of their property taxes until they sell their home. Now that's a good idea -- it defers taxes for those more pressed to pay them, until they have the resources to do so through sale of their property. In doing so, it creates future tax revenues while diminishing current revenues, sort of like a rainy day fund. It would probably be a good measure for the Legislature to consider, not in a rush, but with deliberation, to understand its intended and unintended consequences.
The real problem this hasty session will leave unresolved is the fact that we have an outmoded tax system based on the early 20th century economy. It relies upon the sales tax, the business tax and the property tax. The sales tax disproportionately hits middle class and low-income families, while allowing wealthy people to contribute a much smaller percentage of their income to taxes. This is compounded by the exclusion of some services which cater to higher income people, like lawyers and accountants, from the sales tax.
The business tax is on gross income, regardless of whether the business makes a profit or not, making it especially hard on new and expanding companies. The property tax is more related to ability to pay, but that equity is time-delayed between annual taxation and the ultimate sale of real property.
In contrast to most states, we excuse all income from an income tax. Over the years special interests have also lobbied for exemptions that now total in the billions of dollars. So we are left with a tax system that can't keep up with the demand for public services and looks a little like Swiss cheese with the multitude of tax expenditures for the few. This leaves those of us who don't benefit from a special interest assuming an even larger responsibility for public revenue.
It seems inevitable that lawmakers will re-enact Initiative 747 on Thursday, but they should make that measure temporary. Then, in January, they could concentrate on taking apart and rebuilding our tax system so that it can deliver public services, like K-12 and higher education, supported by a tax system in which we all share responsibility, with a fair shake of equity thrown in.
We don't want to just eliminate taxes willy-nilly. We do want to provide the public services essential to a robust private sector economy in the 21st century. To do so, we need to take a careful look at the whole system of taxation, plug the holes that let some businesses and individuals off scot-free, and come back to the people with a proposal for fair and equitable tax reform that funds our democracy.

John Burbank, executive director of the Economic Opportunity Institute (www.eoionline.org ), writes every other Wednesday. Write to him in care of the institute at 1900 Northlake Way, Suite 237, Seattle, WA 98103. His e-mail address is john@eoionline.org.

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