Another punt on our upside-down tax code

The following story appears in the Washington State Labor Council’s 2018 Legislative Report (HTML or PDF) published in May.

By JOE KENDO

Washington is a great place to live, with strong communities, beautiful natural resources for recreation and healthy living, and a robust economy with good wages. However, the people of our state also suffer under the most regressive, backwards, and upside-down tax code in the nation. While certain legislators worked to inject a little more justice into the system this year, the Legislature largely failed to address this threat to equality, equity, and economic justice.

The Institute on Taxation and Economic Policy reports that people earning less than $21,000 per year pay nearly 17 percent of their income on state and local taxes in our state. Meanwhile, top earners making more than $500,000 a year pay an abysmally low 2.4 percent. This is because we rely on a sales tax that hits working families hardest to pay for vital public services—services that were deeply cut during the Great Recession. Coupled with hundreds of special tax breaks for corporations, working families are paying more and getting less out of their government.

Several bills were introduced to help improve this state of affairs, but precious little was accomplished.

SB 5513, sponsored by Sen. David Frockt (D-Seattle), aimed to improve transparency regarding special tax breaks by increasing the frequency of Department of Revenue reporting, and requiring the Economic Review and Forecast Council to include the fiscal impact of special tax breaks in its November economic outlook. But even this modest measure failed to make it to the governor’s desk.

And while the discussion advanced on creating new sources of progressive revenue—like Rep. Kristine Lytton’s (D-Anacortes) HB 2967 closing the loophole on profits from capital gains—legislators pushed to use those funds to offset other sources of revenue, providing some equity, but failing to recognize and address our structural revenue deficit.

Even in Seattle, which has added more than 200,000 jobs in the last decade, the fundamental injustice of our tax code has strained the city’s ability to meet the needs of its residents. Adjusted for inflation, Seattle spends about $110 less per resident than it did in 2008. The city has few options to fund programs in an equitable way, and as local governments are shouldered with increasing responsibility to meet the social and economic needs of the people, they often must turn to regressive revenue options.

The responsibility to fix this problem lays with the Legislature. Cleaning up our tax code should start with closing wasteful tax breaks that fail to support good jobs. We also must ensure that our wealthiest pay their fair share. A modest tax on capital gains—profits made from the sale of stocks and bonds—with commonsense exemptions to protect retirees and certain small businesses, would raise hundreds of millions of dollars to support vital state services, while not further burdening working families, retirees and low-wage earners.

Joe Kendo is Government Affairs Director of the Washington State Labor Council, AFL-CIO, the largest labor organization in the Evergreen State, representing the interests of more than 600 local unions and approximately 450,000 rank-and-file union members.

Click here to see more reports from the Washington State Labor Council’s 2018 Legislative Report. Or download the entire 8-page PDF.