Published: Wednesday, January 7, 2009
Now is the time to change state's unfair tax system
Are we at the dawn of a new era, or are we just hunkering down, trying to figure out how best to escape the financial meltdown? If you are President-elect Barack Obama, you have to be ushering in a new era. But that won't happen if the rest of us are just trying to figure out how to make do.
Unfortunately, our governor is choosing to make do. Last month she proposed a budget that she says she "hates." Her budget cuts off tens of thousands of lower-income working people from health coverage, denies cost-of-living raises for our teachers, and fails to fund a wage ladder for child care workers currently working their way out of poverty. That's making do on the backs of low-income and middle-class citizens.
We are in the "great recession." It is the responsibility of government, and that includes our state government, to develop the recipe for both economic stimulus and public services such as health care and education. The solution can be found at the bottom of the inequitable mess we call our Washington state tax system. Now is the time to take that tax system and turn it upside down.
By repeatedly dismissing any kind of new taxes, our governor built her own box of horrors. If she can only think of taxes as an increase in the sales, property, or business taxes, she is missing the big picture.
Our tax system is one in which middle-class families are taxed at a disproportionately high rate, and the tax code is like swiss cheese, with special benefits for those corporations with the slickest lobbyists, while small businesses pay a disproportionate share of total business taxes.
Here is one example: Our tax code encourages businesses to not invest in plant and equipment, but instead put their money in the stock market. That loophole exempts all corporate income in the form of interest, dividends and capital gains from business taxes, while regular income from the sales of goods is taxed. That means companies are actually given a powerful incentive to put their money in Wall Street instead of investing in plant and equipment in our state. The governor could have proposed closing this tax loophole (a $400 million a year gain for public services), and at the same time exempted 80 percent of all businesses from the gross receipts tax, and still realized new revenue to pay for health care.
This loophole, unfortunately, does not stand out by itself. We had a growing economy in 2004, when the Legislature got to work on a whole new untidy heap of tax exemptions. These loopholes mean an annual loss of $445 million for public services. They should be closed immediately.
Here is another example: If you own your home, every half-year you pay a sizeable chunk of money for property taxes. I think that is necessary. But what is galling is that if you own $1 million, $10 million, $100 million or $1 billion in intangible property, like stocks and bonds, you pay no taxes on it. And yet it is protected by the legal systems and financial rescue packages provided through the state and federal governments, something which homeowners struggling to pay their mortgages are not afforded.
If we taxed intangible property at one-half of 1 percent of value (less than the tax on real property), we could raise more than $1.25 billion a year for public services. Which is more important: maintaining legal tax avoidance for the wealthy in our state, or funding retraining and education for laid-off workers and health care for their children?
There is a way to get out of the bind we are in without just getting in line with all the other states for a handout from the federal government. This is the moment for progressive tax reform in our state, to ditch the old, archaic and unfair system we have now for "change we can believe in." That's what President-elect Obama is promising. But it is not something to be just handed down on high from D.C. We have to make our own change here.
Our governor should be leading the charge, rather than being busy cutting off services when we need them the most. That's not the leadership we voted for.
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.
Unfortunately, our governor is choosing to make do. Last month she proposed a budget that she says she "hates." Her budget cuts off tens of thousands of lower-income working people from health coverage, denies cost-of-living raises for our teachers, and fails to fund a wage ladder for child care workers currently working their way out of poverty. That's making do on the backs of low-income and middle-class citizens.
We are in the "great recession." It is the responsibility of government, and that includes our state government, to develop the recipe for both economic stimulus and public services such as health care and education. The solution can be found at the bottom of the inequitable mess we call our Washington state tax system. Now is the time to take that tax system and turn it upside down.
By repeatedly dismissing any kind of new taxes, our governor built her own box of horrors. If she can only think of taxes as an increase in the sales, property, or business taxes, she is missing the big picture.
Our tax system is one in which middle-class families are taxed at a disproportionately high rate, and the tax code is like swiss cheese, with special benefits for those corporations with the slickest lobbyists, while small businesses pay a disproportionate share of total business taxes.
Here is one example: Our tax code encourages businesses to not invest in plant and equipment, but instead put their money in the stock market. That loophole exempts all corporate income in the form of interest, dividends and capital gains from business taxes, while regular income from the sales of goods is taxed. That means companies are actually given a powerful incentive to put their money in Wall Street instead of investing in plant and equipment in our state. The governor could have proposed closing this tax loophole (a $400 million a year gain for public services), and at the same time exempted 80 percent of all businesses from the gross receipts tax, and still realized new revenue to pay for health care.
This loophole, unfortunately, does not stand out by itself. We had a growing economy in 2004, when the Legislature got to work on a whole new untidy heap of tax exemptions. These loopholes mean an annual loss of $445 million for public services. They should be closed immediately.
Here is another example: If you own your home, every half-year you pay a sizeable chunk of money for property taxes. I think that is necessary. But what is galling is that if you own $1 million, $10 million, $100 million or $1 billion in intangible property, like stocks and bonds, you pay no taxes on it. And yet it is protected by the legal systems and financial rescue packages provided through the state and federal governments, something which homeowners struggling to pay their mortgages are not afforded.
If we taxed intangible property at one-half of 1 percent of value (less than the tax on real property), we could raise more than $1.25 billion a year for public services. Which is more important: maintaining legal tax avoidance for the wealthy in our state, or funding retraining and education for laid-off workers and health care for their children?
There is a way to get out of the bind we are in without just getting in line with all the other states for a handout from the federal government. This is the moment for progressive tax reform in our state, to ditch the old, archaic and unfair system we have now for "change we can believe in." That's what President-elect Obama is promising. But it is not something to be just handed down on high from D.C. We have to make our own change here.
Our governor should be leading the charge, rather than being busy cutting off services when we need them the most. That's not the leadership we voted for.
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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