Financial heavyweights square off on income tax measure

  • Fri Oct 8th, 2010 1:40pm
  • News

By Noah Haglund Herald Writer

Two long-standing pillars of Puget Sound-area civic life faced off Thursday night over a ballot initiative that would add an income tax on Washington state’s richest people in exchange for cuts to property and business taxes and increased education and health care spending.

Attorney William Gates Sr., father of Microsoft co-founder Bill Gates, told a crowd at Edmonds Community College that Initiative 1098 would provide money for priorities that Washington’s leaders have failed to support.

“This seems to me an opportunity to step up and do something about the funding for education and health care,” Gates said.

Former U.S. Sen. Slade Gorton, R-Wash., countered that the initiative would sap the state economy and, paradoxically, leave less money for education.

“What happens when states go down that road is they lose ground, they lose money, they lose income,” Gorton said.

Gorton later said, “If you want good schools and good social services, you’re going to have to have a good economy.”

Edmonds City Councilman D.J. Wilson moderated the debate between the attorneys. It’s part of the “Civic Engagement” series and will air on local cable channels.

Initiative 1098 would impose an income tax on those earning more than $200,000 individually or $400,000 as a couple, about 1.2 percent of Washington’s households.

The initiative’s supporters say Washington needs 1098 to generate an estimated $2 billion annually for education and health care spending. It would benefit property owners by cutting the state’s share of the property tax by 20 percent. That would potentially save a typical homeowning married couple in Snohomish County about $125 a year.

The initiative also would eliminate most of the state’s tax on small business income.

Backers say the initiative wouldn’t make the rich pay more than they’d pay in other states with income tax.

Marilyn Watkins of the Seattle-based Economic Opportunity Institute sat next to Gates. She said Washington ranks near the bottom nationwide in its funding for public education and that it’s important to change the situation soon before more children lose out.

“That’s why we’re proposing this modest new tax on those who can best afford it,” Watkins said.

Opponents argue 1098 would bring no meaningful education or taxation reform to Washington. The state sales tax, which reaches 9.5 percent in parts of Snohomish County, is widely regarded as unfair to people with lower incomes who have to spend a larger share of their money on necessities. The sales tax wouldn’t change under 1098.

Plus, the anti-1098 camp says the initiative is sure to bring unintended consequences that will hurt business and the state’s overall economy.

They contend it would erase one of Washington’s best tools for recruiting businesses and jobs: the lack of a state income tax. They worry that the Legislature, after two years, could potentially extend an income tax to everyone in the state.

“They have repealed, amended or changed every citizens’ initiative that has ever been passed,” said Paul Guppy of the Washington Policy Center in Seattle, who joined Gorton on Thursday in arguing against 1098.

Gates serves as co-chairman of the philanthropic Bill &Melinda Gates Foundation, though he said his support for 1098 is independent of that role.

He’s given $500,000 to the pro-1098 campaign. The Service Employees International Union, plus its local chapters, has been the initiative’s strongest financial backer, chipping in more than $2 million, state campaign finance reports show. The National Education Association teachers union also has pitched in $500,000.

Gorton served on the bipartisan commission that examined the Sept. 11, 2001, terrorist attacks and their aftermath. He also represented Washington in the U.S. Senate from 1981 to 1987 and again from 1989 to 2001.

Gorton and his wife have given $500 each to the Defeat 1098 campaign, state campaign-finance records show. Prominent Washington businessmen dominated the anti-1098 contribution list, including $100,000 each from Amazon.com founder Jeff Bezos, Microsoft CEO Steve Ballmer and former Seattle SuperSonics owner Barry Ackerley.

Technically, 1098 would create an excise tax that would vary depending on how much people make. Individuals who earn $200,000 or less and couples who earn $400,000 or less pay nothing.

Individuals who earn more than $200,000 would pay 5 percent of their income between $200,000 and $500,000. Individuals who earn more than that would pay $15,000 plus 9 percent of any income above $500,000.

Couples filing jointly who earn more than $400,000 would pay 5 percent of any income between $400,000 and $1 million. Couples who earn more than that would pay $30,000 plus 9 percent of any income above $1 million.

As part of Initiative 1098, small businesses also would get relief from the state’s business-and-occupation, or B&O, tax. The initiative proposes to do that by providing a tax credit for up to $4,800 per year, which its backers claim would exempt the smallest 80 percent of businesses in the state.

Initiative 1098

It would:

•Impose an income tax on individuals who earn more than $200,000 and couples filing jointly who earn more than $400,000, what is projected to be the wealthiest 1.2 percent of Washington’s residents.

Reduce the state’s share of the property tax by 20 percent. Eliminate the business-and-occupation tax. Create a trust fund to pay for education and health care.

Arguments on I-1098

The “yes” camp argues it would:

•Help even out Washington’s taxation system. Raise an estimated $2 billion per year for education and health care.

Benefit the middle class on taxes; the average homeowner in Snohomish County would save about $125 annually on property tax. Lower taxes for small businesses.

The “no” camp argues it would:

•Allow the Legislature, after two years, to extend the income tax to everyone in Washington.

Do nothing to lower Washington’s sales tax, which is as high as 9.5 percent in parts of Snohomish County.

Make no meaningful education reforms. Eliminate one of the best recruiting tools to lure businesses and jobs to Washington: the lack of a state income tax.

For more information, see www.yeson1098.com or www.defeat1098.com.

Noah Haglund: 425-339-3465, nhaglund@heraldnet.com.