With a massive budget hole facing the Legislature and a tax revolt thriving, the timing could hardly have been better for this week’s release of a major study on our state’s dysfunctional tax structure.
An 11-member committee, made up of lawmakers and academics and chaired by Bill Gates Sr., has come up with a detailed report that’s full of recommendations for making the state tax system more fair and stable, and for making the state a better place to do business.
Among those recommendations is the adoption of a state income tax, an idea that historically draws even more howls of protest than a gas-tax hike. But that’s not the only idea contained in the report, which stands to be an invaluable tool for improving our fiscal health whether or not an income tax ever comes into being.
Most of the report contains specific proposals for changing the way businesses and individuals are taxed. Some taxes would be simplified, but understanding all the potential ramifications is far from simple. Much study and debate is needed.
One particularly sensible idea, however, deserves immediate attention: the creation of a constitutionally required "rainy day" fund. The aim is to curtail the effects on the state general fund of wild revenue swings that coincide with ups and downs in the economy.
In good times, tax revenues tend to increase faster than personal incomes, tempting some lawmakers to spend more and others to cut taxes. In bad times, lawmakers have two distasteful options: slash popular programs or raise taxes — or both. The committee’s proposal would require an amount of money tied to a predetermined measuring stick to be set aside in a virtual savings account, away from those who would spend it. In bad times, money would flow from that account into the general fund. Because the fund would be constitutionally protected, lawmakers would have a hard time breaking into it.
Another alluring idea is to replace the business and occupation tax — one of the most ill-conceived taxes on the planet — with a value-added tax. One of the B&O tax’s many dark sides is that it causes many products to be taxed multiple times — at various stages in the manufacturing process — and most or all of those taxes are passed onto consumers. A value-added tax would be assessed just once.
Even an income tax, which like other committee proposals would require the approval of voters, should be put on the table and debated at some time. One obvious point in favor of a state income tax is that unlike the sales tax, it can be deducted from your federal tax return. Any income-tax plan, of course, would have to be accompanied by reductions in other taxes.
The committee’s report is thorough and important. Gov. Gary Locke and legislative leaders should take full advantage of it.
The committee’s full report can be viewed on the Web at www.dor.wa.gov/content/WAtaxstudy/Final_Report.htm.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
