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Editorial: Closer to tax reforms, work group must find accord

With proposals ready for more analysis, the work group must reach consensus to fix an unfair system.

By The Herald Editorial Board

It’s a good idea to keep a book of Greek mythology handy when listening to the deliberations of lawmakers, especially when taxes are involved.

So, it was probably inevitable that Pandora would come up as the state’s Tax Structure Work Group wrapped up a nearly three-hour meeting a month ago during which the voting and non-voting members sifted through various tax reform proposals, choosing which to move forward and considered the complexities in balancing a tax cut here against a tax increase there.

“I feel like I know how Pandora felt right now; all of us probably do,” said Sen. Keith Wagoner, R-Sedro-Woolley, co-chair of the work group, referring to the Greek myth in which Pandora, the first human woman, out of curiosity opens a jar left in her care and releases a host of evils upon the world.

Rather than evils, however, what’s been released is a Gordian knot (see Great, Alexander the; and knot, impossibly tangled) of complex economic considerations, demographics and trade-offs inherent in finding fairness in the state’s tax code.

The work group, meeting since 2019, including town hall meetings and public surveys, is tasked with reaching consensus on suggested legislation for reforms to the state’s package of taxes — personal and business — that can provide more equity and fairness, greater stability and predictability in meeting the state’s revenue needs and more transparency regarding the tax system, all while making changes that are revenue neutral, resulting in no net increase or decrease to the state’s coffers.

Considering the regressive nature of the state’s tax system, the group’s task more closely resembles sticking a good chunk of the existing system back in Pandora’s jar.

According to work group materials, state households earning between $17,000 and $30,000 a year pay about 15 percent of their income as state and local taxes, while the state’s wealthiest households pay just 3.4 percent of their income in state and local taxes. Washington state, in fact, ranks at the very bottom of the 50 states in terms of tax fairness, according to the Institute on Taxation and Economy Policy, a nonpartisan tax policy group.

“Washington has the most unfair state and local tax system in the country,” ITEP’s most recent report found.

At its most recent meeting, the work group — which includes seven state lawmakers, and a representative each from the governor’s office, state Department of Revenue, the Association of Washington Cities and Washington State Association of Counties — winnowed down a list of proposals that will allow the analysts at the Revenue Department to begin gathering numbers and details.

What didn’t survive on either the personal or business side were proposals for a progressive or a flat income tax, even though responses in surveys of the public showed a slight majority favored a progressive personal income tax. A majority of the voting members either opposed an income tax or believed that getting a required amendment to the state constitution adopted would not be feasible. The vote was closest on a flat personal income tax, with five opposed and four supporting.

What has made it through to this point are:

A property tax exemption for primary residences (with a $250,000 level provided as an example) and the possibility of a corresponding tax credit for renters;

A change to the state’s 1 percent limit on property tax increases, allowing for adjustments to state population and the rate of inflation;

An increase in the state’s working families tax credit, increasing eligibility, the amount of the credit or both;

A wealth tax; and

Replacing the state’s current and unpopular business and operations tax with a margins tax.

While not specifically considered as a proposal, the prospects for a reduction in the state’s sale tax remain a possibility to be included in final proposals for legislation.

Even with that general agreement on which proposals to move forward, the difficulty in reaching consensus on final proposals has begun to show among the work group members, specifically on the goal that the package presented will be revenue neutral.

Toward the end of the discussion, at least two members, Rep. Ed Orcutt, R-Kalama and Sen. Phil Fortunato, R-Auburn, raised questions about being able to dissent — if necessary — from the work group’s conclusions if either preferred to recommend tax cuts without approving of increases that would offset the loss in revenue.

Wagoner argued to keep the group on task but ally concerns about work group members seeming to support proposals they normally might oppose.

“Nothing we’ve worked on here in this theoretical arena limits your actions as independent representative of people,” Wagoner reminded. “Hopefully we learn and have a chance to work together on some ideas that we can all agree on. But nothing we’ve done here limits your actions outside this body.”

Wagoner’s co-chair, Rep. Noel Frame, D-Greenwood, agreed on the need for a final package that has the consensus of the group’s members.

“This is a bipartisan and a bicameral and beyond process. I’m not terribly interested in a process that isn’t bipartisan in the end,” she said. “I would really encourage folks to engage deeply in the next several stages of the conversation. I am really hoping, try as I might for some degree of consensus, hopefully, that the vast majority of us can stand by.”

Especially as more details are provided by the state’s revenue analysts, the tangled knot of trade-offs and complications will tighten. Members of the work group have been asked to make difficult decisions, possibly ones unpopular with their constituents — especially in an election year — but that should have been clear to them at the start.

In the end, for either the 2023 or 2024 legislative session, lawmakers must be able to make some significant changes to the state’s tax system. As recent forecasts have shown, the current system seems able to provide ample revenue for the state’s needs, but it is doing so too often on the backs of those least able to support it.

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