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Published: Wednesday, October 20, 2010, 12:01 a.m.

I-1098: County's business community split on income tax initiative

Owners of businesses in the county are split on how the income-tax measure could affect them.

Supporters of a ballot initiative to assess an income tax to Washington’s richest households say it would benefit local companies by cutting state property and businesses taxes.
Initiative 1098’s opponents, who include many of the state’s business elites, say the overall effect would be harmful. Some even say devastating.
So where do Snohomish County’s businesses come down?
Here’s a typical response, from the chief executive of an Everett-based temporary-staffing and recruiting company:
“The bigger picture on this particular initiative is frightening, really,” said Steve Neighbors of Terra Staffing Group, which has five offices in the Puget Sound area.
Or take this, from Andy Skotdal, whose family runs Everett-based broadcast and real estate companies: “If you want to stagnate job growth, 1098’s a great way to do it.”
Like many fellow businesses owners, they worry that higher taxes would lead to less investment. They warn that the tax cuts could eventually be extended to people with lower incomes with a simple-majority vote by the Legislature after two years. And, they contend, only the smallest businesses would end up benefiting.
To be sure, local business owners come down on both sides of the issue.
On the other side of 1098 is Marcus Tageant, owner of the Lake Stevens real estate and property-management company Task Properties. The Lake Stevens city councilman also serves as the president of the Greater Lake Stevens Chamber of Commerce, which is supporting the initiative. It wasn’t an easy decision to reach, Tageant said, but the chamber’s board concluded it would benefit their members, who typically have fewer than 20 employees.
“That’s why the chamber’s endorsing it, because it’s there to help smaller business, and Lake Stevens is made up primarily of smaller businesses,” he said.
The Lake Stevens chamber is an exception locally. Chambers of commerce for the Everett, Marysville-Tulalip and Arlington-Smokey Point areas are all firmly opposed.
The South Snohomish County Chamber of Commerce couldn’t reach a consensus, and the Edmonds chamber, following its general practice, abstained from taking a position.
The initiative would impose a 5 percent tax on incomes above $200,000 for individuals and $400,000 for couples. That rises to 9 percent for individual incomes of more than $500,000 and joint incomes of more than $1 million. This also would apply to companies registered as S corporations, which pass profits and losses directly to shareholders.
The revenue collected would raise an estimated $2 billion annually, with 70 percent going to education and 30 percent going to health care. The initiative also would give property owners and small businesses some tax breaks.
All property owners would get a 20 percent break on the state share of their property taxes. Some businesses say that provides little relief, since most of their tax bill goes to local taxing districts, not the state.
“The property tax deduction is really trivial, because it’s only the state portion, not the local portion, which is the larger portion,” said Greg Tisdel, owner of Tiz’s Doors, an Everett-based manufacturer with 26 employees. “When they talk about a 20 percent cut, to me it’s a 4 percent cut because I get 20 percent of the state portion, not 20 percent of my whole property tax.”
Edmonds City Councilman D.J. Wilson, who runs Wilson Strategic Communications, a small public-policy consulting firm, doesn’t consider so trivial the $1,500 or so he estimates he would get back in property and B&O taxes.
“That’s not nothing; that’s a big deal,” Wilson said. “There are very few circumstances where the government would give me a $1,500 incentive to invest back in my company.”
Supporters say the initiative also would exempt about 80 percent of local businesses from the state business-and-occupation, or B&O, tax. It would do that by raising a tax credit from the current $420 to $4,800.
One of the big points of contention between the camps is whether the initiative opens the door for everyone to be taxed. That’s too tempting for the Legislature to pass up as soon as it confronts another budget crunch, say the skeptics.
“Small businesses have had to cut staff, let people go, owners are working longer hours to make up the difference,” said Patrick Connor, state director for the National Federation of Independent Business, which generally takes conservative stances on tax issues. “They’re honestly struggling and not seeing the same thing from state government.”
Supporters say that the current Legislature lacks the political will to extend the income tax beyond the wealthiest 1 percent or so of the population. If that happened, 1098 supporters have argued, there would soon be an initiative to repeal it.
Many people on both sides of the issue agree completely about one thing: The state’s tax system needs to change. Reducing the state’s high sales and business taxes generally top that list.
Howard Bargreen, the owner of Everett’s Bargreen Coffee Co., said he isn’t against taxes, “but I-1098 will have the net effect of discouraging business from starting up in Washington, and, as a small-business owner, I think this is the wrong direction.”
The South Snohomish County Chamber of Commerce opted not to make a recommendation, after its members split on the issue. Earl said some chamber members have suggested a balanced group of leaders, perhaps appointed to a blue-ribbon panel, might be better positioned than the initiative process to draft new tax proposals, said Barbara Earl, co-owner of BETS Consulting of Mill Creek and chairwoman of the chamber’s governmental affairs committee.
Initiative 1098’s biggest financial backers include Seattle attorney William Gates Sr., father of Microsoft co-founder Bill Gates Jr., the Service Employees International Union and the National Education Association.
Substantial contributors to the Defeat 1098 campaign are Microsoft co-founder Paul Allen, Microsoft Chief Executive Steve Ballmer and Amazon.com founder Jeff Bezos.
Noah Haglund: 425-339-3465, nhaglund@heraldnet.com.

Local business groups against Initiative 1098:
•Everett Area Chamber of Commerce
Arlington-Smokey Point Chamber of Commerce
Marysville Tulalip Chamber of Commerce
For 1098:
•Greater Lake Stevens Chamber of Commerce
Neutral:
•South Snohomish County Chamber of Commerce
Greater Edmonds Chamber of Commerce

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