Opinion

When it comes to unfair tax systems, Washington’s No. 1

The start of the 2015 legislative session has brought stiff competition for the most suitable image of Washington’s tax code. Reuven Carlyle, chairman of the House Finance Committee, called it a Ford Pinto, the automotive jewel once named by Forbes as “The Worst Car of All Time.”

A bit more kindly, Gov. Jay Inslee evoked earlier transportation history, finding the moniker jalopy more fitting to the tax system’s barely functioning condition.

Sticking with the transportation theme, my vote is with the sedan chair, that 17th-century European conveyance in which the rich and royal rode, carted around by bearers.

There is much to dislike about taxes, of course, but those we pay in Washington are especially onerous. Start with the hundreds of tax breaks, each one no doubt enacted some point in the past to encourage a worthwhile pursuit. Or not.

Move to the sales tax, which suffers from an ever shrinking base and increasingly arbitrary distinctions over what is and isn’t taxed.

Then on to the bane of business, the business-and-occupation (B&O) tax which is levied on gross receipts rather than a more reasonable measure that takes business costs into account.

All in all, it’s a burdensome, ineffective and increasingly inefficient way for a very large and important enterprise – the state of Washington – to conduct its business.

“There is lots to hate,” summed up Andy Hill, chairman of the Senate Ways and Means Committee, apparently needing no vehicular image to characterize his disdain for the state’s tax system.

But the worst feature of Washington’s tax system is not its arbitrary, unfair and shrinking base. It’s how the burden of taxes is partitioned among us. One in five Washington families makes less than $21,000 per year, and yet on average, these citizens pay seven times more in taxes as a share of their income than do the 1 percent of families who make over a half million dollars.

The middle class in our state catches a bit of a break, but they still pay four times more in taxes as a share of their income than do the top 1 percent.

The unfair nature of our tax system made national news earlier this month when the Institute on Taxation and Economic Policy (ITEP) released its state-by-state profile in which it compares features of state tax systems. Its analysis shows that while taxes in just about every state are skewed – on average the bottom 20 percent of families pay about twice what the top 1 percent pay –those in Washington are the worst, earning us ITEP’s top billing for the state with the most lopsided distribution of taxes.

While everyone loves to hate our tax system, it’s the unfairness of it that rankles the most. Yet as long as Olympia can find the money it needs without overhauling the jalopy or trading in the Pinto, legislators haven’t felt much urgency about taking on this task.

But it’s also not the case that our lawmakers (or most of them anyway) are unaware or unconcerned about the disproportionate burden our taxes place on struggling households. In 2008 it passed tax relief in the form of the Working Families Tax Credit, a rebate that targets 350,000 of the state’s lowest-income families.

The problem is, the Legislature has never followed through to fund this relief. Let’s hope the timing of ITEP’s report convinces it to do so this year, and generously.

Consider this final fact: After adjusting Washingtonians’ income for the state and local taxes they pay, the distribution of income within our state becomes even more weighted toward the rich. In other words, tax policy in Washington state contributes to rather than ameliorates the nation’s growing problem of income inequality.

Not unlike the way things worked in 17th-century Europe.

Katie Baird is an associate professor of economics at the University of Washington Tacoma. Email her at kebaird@uw.edu.

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