Washington State has the most regressive taxes of any state in the country. In Washington, poor people pay 17.3 percent of their income in taxes, while the filthy rich pay only 2.6 percent of their income in taxes. This is the result of our state’s heavy reliance on the sales tax, which accounts for over 50 percent of all state revenue. Imagine two families, one rich and one poor, going to the same store and buying the same basket of goods and subjected to the same sales tax. For the poor family, it’s a much heavier burden than for the rich family. The sensible way to even out the tax burden is to tax income, like most other states. But Washington doesn’t have an income tax. Never has. Hence our status as a national embarrassment—more regressive on taxes than even Texas or Georgia.

As the debate heats up over Initiative 1098, you’re going to be hearing a lot about “the taxpayers of Washington State.” But it’s a very small minority of high-income earners—only about 38,400 of them—who would be paying the new income tax. That’s because it’s a tax only on individuals who earn over $200,000 in a year or on couples who file a joint tax return that shows them collectively earning more than $400,000 in a year. (Meaning that if you’re half of a wealthy couple and together you earn $399,999 a year, you don’t have to pay any income tax under I-1098. Hence that segment of the pyramid, right below the top, where you see 72,858 tax returns from people who earn more than $200,000 per year but wouldn’t have to pay. Those are returns from couples who are well-off but don’t hit the $400,000-per-couple threshold.) The new income tax on the 38,400 wealthiest Washingtonians would bring in about $2 billion annually for education and health-care programs—programs that help working families and the middle class the most.

In Washington, people who earn an average of $11,000 a year currently pay 17.3 percent of their income in taxes, but people who earn $1.8 million a year pay only 2.6 percent of their income in taxes. It’s like a sliding scale that’s sliding in the wrong direction. Or trickle-up economics. Or a subsidy for moguls and CEOs. Washington currently has a $3 billion projected budget shortfall for the next two-year budgeting cycle—which means, just like in the last budgeting cycle, programs dealing with everything from health care to public education are going to be hacked away at. Perversely, those cuts will land hardest on those who already pay the highest percentage of their income in taxes.

Bleak numbers, but this initiative could help. In addition to adding a high-earners income tax, if I-1098 passes, the rich and poor alike in this state will get a 20 percent cut in their state property taxes. And 93 percent of all businesses would get a tax cut or an exemption from B&O taxes. Economic stimulus! (This despite claims by opponents that I-1098 is going to hurt businesses in Washington.)

The main argument from income-tax opponents is that I-1098 is just the beginning. Wait a few years, they say, and it won’t be just the filthy rich who are paying income tax—it’ll be everyone. How will this happen? The Democrats in the state legislature! They’ll expand the income tax! They can’t resist! The truth is, in the entire history of Washington State, the state legislature—whether controlled by Democrats or Republicans—has never successfully implemented an income tax. Politicians in Olympia are simply too cowardly to touch this idea. In any case, even if they did decide to destroy their careers by taxing more than just the filthy rich, citizens always have the last word. They can reverse an action of the legislature by initiative or, as they seem likely to do this fall, vote for an initiative like I-1053 (also on the ballot in November) that makes it harder for Olympia lawmakers to institute any tax increases in the first place by requiring a two-thirds majority for any such move.

Who’s behind the $1.5 million campaign against finally fixing the most regressive tax structure in the country? People like Matt McIlwain, the Seattle venture capitalist who was ranked 57th on the Forbes Midas List in 2009 and has personally donated $5,000 (while his venture capital firm has kicked in $50,000) to defeat I-1098. McIlwain sent his kid to private school and supports the anti-gay-marriage group Families Northwest. Wireless communications magnate John Stanton and his wife, Theresa Gillespie, one of the richest couples in America, estimated to be worth more than $1 billion, have put in $75,000 to defeat I-1098. And let’s not forget Seattle Times publisher Frank Blethen, who earned $1.13 million in salary and bonuses in 1999, according to the Wall Street Journal, and whose editorial page has led the rhetorical charge against I-1098. Let’s say Blethen now earns only $1 million a year (times are tough for newspapers) and files a joint tax return. Under I-1098, Blethen would be paying only 3 percent of his earned income in taxes. Let’s say times have gotten really tough and Blethen these days earns only $500,000 a year. In that case, he’d pay only 1 percent of his income in taxes under I-1098. Boo-hoo. The main mover behind I-1098, Bill Gates Sr., a famous lawyer and philanthropist and father, has put $500,000 of his own money into the campaign to pass the high-earners income tax. He is one of those people at the top of the pyramid, so he would pay the tax. Happily. recommended

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Eli Sanders was The Stranger's associate editor. His book, "While the City Slept," was a finalist for the Washington State Book Award and the Dayton Literary Peace Prize. He once did this and once won...

129 replies on “Tax the Filthy Rich!”

  2. That pyramid confuses me. Is the top section (38,400 returns) the $200,000+ bracket or are the top two sections? Both say 200,000+, but the second from the top says it would have an estimated 72,858 returns. Are all individuals who make $200,000+ getting taxed, or would some have to pay and others wouldn’t?

  3. @#3 – The pyrimad is explaining that only those who file as making 200K and above if filing alone, or those making 400K or above who file jointly will be required to pay the income tax.

    Basically, if you don’t make 200K or more, you don’t pay it. Period. It’s only the REALLY rich who would be taxed.

  4. Nevermind. After rereading the article, it’s explained below. I guess the lower 200,000+ bracket is couples making over $200,000, but only individuals that make $200,000+ or couples making $400,000+ get taxed.

    I still think the graph’s confusing. 😛

  5. @Hover_Dog: From the article:

    “Hence that segment of the pyramid, right below the top, where you see 72,858 tax returns from people who earn more than $200,000 per year but wouldn’t have to pay. Those are returns from couples who are well-off but don’t hit the $400,000-per-couple threshold.”

  8. The graphs and numbers in this article will only scare or anger you if you are politically aligned with the author. Most of the facts and figures here actually make me feel really fortunate to live in this state.

  9. The thing is, there are so many wealthy people (thanks to the software industry, etc) in this state who make a modest SALARY but live off of stock options and such, and only pay 15% in federal capital gains.
    They don’t MAKE AN INCOME — a paycheck — so they won’t be paying this new state INCOME tax.

    So really, I think those who support this tax are not being straight about who will really PAY. Will the proverbial software millionaire pay it? Doesn’t sound like they’ll need to pay a cent of it; they only pay their 15% CG’s to the feds.

    Seems like this state income tax will place a very heavy burden on those who already drive the economy — small business owners, doctors, lawyers, etc. I know, you probably don’t feel bad for “them”, but believe me, they pay a bundle already in insurance, federal income tax, state B&O, benefits for employees, etc etc etc. Those taxes are already making it difficult to stay afloat as a business and individually.

    I won’t be voting for this thing.

  10. @JF, it’s not a bill, it’s an initiative. It’s an interesting philosophical question, I suppose. You could also ask why someone making less than $20,000 should pay any taxes at all. All that said, and to paraphrase an old dead dude, it’s the price of civilized society. The rich get their money and all the protection that goes along with it and everyone else gets a break on property taxes. Also, many businesses benefit with the decrease in B&O taxes.

  11. @11: Nice try, but adjusted gross income includes capital gains.

    However, you’re right about small business owners, doctors and lawyers being treated differently: if they own their own business, they will get a pretty substantial B&O tax break, not to mention the property tax breaks they will get on their home, lakefront property, and business property.

    Your post deserves an ‘A’ for creativity, but an ‘F’ for intelligent thought.

  13. -Too much of a burden already
    93% of businesses will no longer have to pay a B&O tax, in case you’re wondering that’s the percent of businesses that typically don’t post a significant profit.
    In addition, those small business owners, doctors, and lawyers will get a 20% state property tax REDUCTION on ALL their homes.
    And if they send their children to public schools, their children will experience an increase in the quality of education.
    If anyone is carrying too much of the burden surely you can agree it is the 63% of Washington families paying between 8 and 18% of their income into state taxes.

  14. Not a single nickel more in taxes until the state can show that it is spending current tax revenues efficiently and effectively. Every agency should be subjected to an independent efficiency review to determine if we, the taxpayers, are getting value for our dollar.

    In the private sector, we are required every so often to prove that we are using the resources we’re given effectively. The public sector should have to do the same, but tell me – when was the last time this happened?

  15. @9– Because they’re also LEFT with a lot more in absolute dollars. It’s not about what you pay, it’s about how much you have left to live on.

    Even in a flat tax structure (which is also a stupid idea, but let’s use it for the sake of the example) the rich person pays more in real dollars.

    Example: Person A makes $20k and is taxed 10%; Person B makes $200k and is taxed 10%. Person A is only left with $18k to try to live an entire year on while PERSON B STILL HAS $180k!

    Yes, I know that this is obvious and that we all know this, but the simple fact is that Person B will be just fine and Person A will probably not even be able to live on their income.

    Now, shifting the example to take the real numbers into account: Person A actually has $16,540 while Person B is cruising along in their shiny new boat counting their $194,800.

    Now, with what’s left (which, again, is the real point here), tell me who can afford to pay a little more in real dollars…

  17. @12– “…to paraphrase an old dead dude, it’s the price of civilized society.”

    This is precisely right. I am a single home owner with no children who pays a BUNCH of money every year in property taxes. Much of that tax money goes to pay for public schools. Why should I pay that money if I have no children using those public schools? Why? Because that is the price I pay for living in a society where we need educated people to make everything work. I might not be using the dollars directly, but I am getting direct benefit.

    And my house is worth more than my neighbor’s, so I pay more (and they have a child…gasp!).

    Pretty simple, really.

  18. Good points 11. A friend of mine once told me that the tax system in this country is designed to punish income and reward wealth. Cutting property taxes and going after income couldn’t be clearer proof. Your pyramid is about income, not wealth. Way to protect those who inherit or make so much that the concept of a “pay check” is nonsense to them. But go ahead and feel good about it as you pass it. Then when the dollar depreciates even more and some of you actually experience some success in life and the two converge to push you into the 200+ zone you will look back at your naivete right now and laugh and/or cry.
    Start rants about how “if I ever made that much money I’d be HAPPY to pay……” now.
    And for the record, this tax doesn’t apply to me and is incredibly unlikely to at any point.

  19. 1098 is a tax cut on property tax.

    It’s regressive because it gives the biggest asset owners the biggest tax giveaway.

    The property tax cut will take away 1/2 a trillion dollars in taxes from the state.

    This bill is “faux populism”. It increases taxes on people who work for their money, and reduces taxes on people who have idle assets.

    Overtime, it is obvious they will ratchet down the floor for who pays income tax until everyone is paying it and the state becomes even more unbalanced.

    Over the next few years, we will experience a great compression in which high end incomes will come tumbling down.

    That will leave an entrenched high asset class – whose taxes you wish to cut. And an income tax. The politicians will then remove the floor and tax everyone. At that point, 16 moves ahead, all we all left with is a tax cut for those will supersized assets.

  20. I’m curious what counts as taxes paid in the chart shown above. Is that purely sales tax? Property tax? Car tabs? I personally am in the bracket above $200K (not by much, probably $230K this year) and am shocked that it says I only pay (on average) $13,000 in taxes. My property taxes alone are over $5000.

  21. Now, if we contrast this article with Dominic’s article last week, and his bullheaded assertions that sales tax on small items is the way to go, I think we start to see a better picture of who’s paying what taxes.

  23. In CA, we have the luxury of paying a state income tax AND the highest sales tax in the country. It’s a bit too complex to make a point with that information relating to I-1098, but there it is.

  24. What I love about 1098 is that the $2 billion it would raise would go towards public education and healthcare and not just go into the state’s general account. I’m tired of seeing tax dollars wasted on things we don’t need while the schools are suffering so much.

    yeson1098.com

  25. @9, I’m sure if this is the only question you have that keeps you from being persuaded, there is a book (or a uh discipline) on addressing this issue, ranging from the moderate to the extreme.

    But basically what persuades me on this point is that the rich, the holders of capital, make it at the expense of the lower paid, who by underpaid labor and consumer spending, credit and banking schemes continually sap the money from these lower paid to the higher echelons. I understand economics is not a zero sum game, that capital is also created (largely by wage labor), but for the most part people are getting ripped off by the rich. As Jon Stewart stated simply, “I don’t mind giving back to a society that has given me so much.”

    So is an income tax redistribution of wealth? Socialism? In some senses it is, but it is also not the straw man tea partiers make it out to be. This is not, god forbid, Canadian Socialism (though really people mean Communist Soviet Russia of course).

  26. “Washington state” not “Washington State”

    This article opens with the worst manual of style pet peeve. The proper noun “Washington State” refers to WSU. The state is only named Washington.

  27. Eli, I love the food, er, income pyramid, and have a request: could you write up an explanation of today’s Seattle Times editorial to explain why a rational business owner (presumably) would oppose this initiative of the basis of “it’s too expensive” to change one kind of corporation to another (Chapter C vs. Chapter X, or whatever)?
    Thanks.

  28. People who vote for 1098 belong in Frank Cassano’s Imbecile Parade. The tax will QUICKLY (read: within 5 years) be amended to fall upon most earners, and NOT just the wealthy. This follows a law of physics. The wealthy control the legislature, the wealthy don’t want to pay the tax, therefore YOU ALL will pay it. The history of every income tax is that it was sold as “a tax on the wealthy,” and each has become a tax on all earners. Further, it won’t fix anything that’s broken and won’t stabilize the state’s revenue stream. It is just hidden agenda that the deployment of the tax upon the middle class will be performed incrementally after 1098 passes. It’s all part of the plan. Vote for 1098 and fuck yourself.

  29. I have a problem with any income tax proposed by people with money already. If it’s all such a good idea, why aren’t they writing the state a check to cover the deficit voluntarily??

    Oh wait, most of Bill Gates Sr’s money is probably in property, assets, and other foundations and he doesn’t give one damn about this initiative because he gets a nice tax cut on all his assets. Meanwhile, anyone who actually does well in life and starts getting up into the upper middle class gets fucked over thus keeping them from ever competing with someone of Bill Gates’ wealth. Than in another two years when the economy is still tanking and the income tax measure brings in half the revenue that was projected (as happened in Oregon), they will lower the floor. It is inevitable due to state legislators always spending every dime that comes in. This WILL NOT solve any problems.

  30. #13:
    Wow, do you realllllly think lawyers and doctors all live in waterfront properties? You must not know any.

    Those folks (small business owners, doctors, lawyers) are already carrying a huge burden PLUS I know many who are being called upon to help support their extended families– many, because those family members are are unemployed/underemployed/or are elders needing serious assistance. And then, try to pay for your kids’ college, and maybe try to save a little bit for their very-soon-to-be elder selves…and they are being crushed from all sides.
    This tax is absolutely insane. These folks I’m speaking about are seriously holding this economy together, and if the state of WA starts dinging them any further, it will get so ugly around here….

  31. We need to institute a Jock Tax too. When A-Rod comes to Seattle and makes his 203703.70 per game, we need to tax it. California has collected over 1 billion by taxing visiting sports stars.

  32. CAREFUL. Most of those filthy $s you want to tax are going to POOF. Most family businesses, professional partnerships, etc., are sub-s. That means they by-pass the corporate tax and are reported on individual tax returns. If Eli prevails, all those folks can quickly re-elect to go ‘c’ corp. Whoops, now all those $s you gave away on the property tax break can’t be covered. Can we guess on next year’s press release. . . . “due to a substantial drop in anticipated revenue from the tax the filthy rich tax, we must lower the taxable income to $60,000….”

    By the way, Gates sr. is also a huge fan of estate taxes. But his family will probably pay $0 on that tax. Sounds good, especially after that second Syrah….

  34. You do realize that corporations never actually pay taxes? They just increase the price of their products so that, in effect, consumers pay a hidden tax when they buy those products.

  35. @Scott S34715 Exactly. All we’re doing is medicating symptoms instead of curing diseases. The disease is violence and the reason certain people are so rich is because they use the violence of the state to gain the benefits of corporate, union, or any other status. Honestly, if you ask me, threatening violence against anyone (rich or poor) who refuses to pay money is armed robbery where I come from (CEO or Union Worker). You want to really help people? Start a non-profit charity and show people why it matters to help and ask for their money voluntarily don’t threaten to kidnap or kill them if they won’t support your cause. When you resort to violence, you simply tell everyone around you that you have no argument. Or else you wouldn’t need to use it. Period. Peace out.

  36. In regards to the notion that this is just a stepping stone to eventually creating an overall income tax, here’s the thing…

    So what? Provided there’s an eventual lowering of the state sales tax, I’m willing to fork over my percentage for the good of the community. But then, I grew up in a family where we actually NEEDED government assistance for a period of time, so presumably my continued existence on this planet automatically biases me.

  37. Thats the whole point here!!! “provided there is an eventual lowering of the sales tax..”

    REALLY? Look, this tax is 90% backed by the state employee unions. It will let our state leadership off the hook from tough negotiations. If this was a swapping of taxes, I’m on board 100%. Its not. Its the creation of a whole new revenue stream for government.

  38. In the private sector, we are required every so often to prove that we are using the resources we’re given effectively.

    It’s always good for an LOL when someone says “but the private sector is more efficient!!!”. Having been employed in the technical private sector full-time for over 10 years now, I can say that if this is the model of efficiency, we’re all doomed.

  39. The state already conducts regular, mandatory performance audits.

    Hasn’t our state consistently ranked in the top 3 in terms of government operational efficiency and overall business climate?

    State taxes are deductible against federal, much in the same way that we currently deduct sales taxes above a certain amount, so the point about adding to someone’s total tax burden is… ?

  41. I think your article lays out your points in a clear and concise fashion. However, there is a core assumption that sales tax will go down, and more importantly, stay down if we implement an income tax. History shows that our state is very poor at money management…and under the guise of being broke, go back to the tax well. What do you think is the idea target? Sales tax. Maybe its just on candy…or bottled water…or alcoholic beverages, but longer term, it’s right at the same spot as today. Then we have the most regressive tax system inthe country…AND an income tax.
    Bottom line, based on history, I don’t trust the state government.

  43. If we’re trying to reduce the regressiveness of Washington’s taxes, why on earth are we offsetting the income tax by reducting PROPERTY TAXES?!

    How many of those people paying 17.3% of their income do you think own real property? I’m betting not many. And to anyone who mentions landlords including property tax in rent costs, do you honestly think low rent landlords are going to drop their rates?

    The only thing that makes sense is to counter an income tax with a commensurate reduction in sales tax. Sales tax is the most regressive tax we have. Why not target it first?

  44. @9:

    a) People pay more a bigger percentage of their money right now if they’re making less than $20,000. You could also ask why people are expected to pay more even though they earned less.

    b) This is a really easy way to help recover funds without having much of a lifestyle impact on ANYONE, &

    c) “Earned” is a subjective term.

  46. Few people realize that ALL taxes eventually come out of someone’s income. It’s just that Washington does it in the least fair and efficient way in the entire country.

    The B&O tax is applied at every stage of product development and paid to the state, but it is ALSO added to the cost of the product, passed on to the next level, and eventually SOLD to the end user, who then pays sales tax on the inflated price. The end user is the only one who pays—from his income!

    In fiscal 2008, the state collected just over $2.9 billion in B&O taxes from businesses, representing over 18 percent of all taxes collected for the state general fund, and $8.3 billion in retail sales taxes. Those two taxes added together make up about 76% of the 17.3% of income that the poor pay in taxes.

    The remainder comes from property taxes. A homebuyer pays tax when buying a house and then has the privilege of paying property taxes EVERY year until he dies or sells the house. The property taxes, again, come out of the homeowner’s income. No matter what the income level, those are the taxes every Washingtonian pays, and they all come out of gross personal income.

    Since ALL taxes come from income, and the ENTIRE tax load amounts to 9% of aggregate personal income, then a flat income tax of 9% could completely REPLACE the entire unfair and complicated system we have now, with everyone sharing the burden equally. Sure, a lot of rich people would complain that they pay too much. If they would be satisfied to KEEP 91%, they wouldn’t mind so much.

    I-1098 would demonstrate how this would work, by practically eliminating the B&O tax and eliminating 20% of the state school tax. It would also establish the mechanism for collecting the new income tax. The OFM calculates that this would initially cost $16 million in 2012 and would gradually taper to about $5 million a year.

    If the income tax is allowed to “trickle down” to the lowest levels and replace ALL of our present taxes, the county tax collectors would go away, the B&O and sales tax collectors would go away, and we would be left with a very efficient tax collection system collecting a very stable tax.

    A bonus would be that every Washington taxpayer who itemizes federal deductions would automatically be able to check the Income Tax block on Line 5, Schedule A, and deduct state income tax. Now, the most anyone in Washington (MFJ) can deduct, without keeping reams of documentation, is $3,339 in sales tax for incomes over $200K in King County. With a 9% WA flat tax, a taxpayer with an AGI of $1 million would get to deduct $90,000 instead and lower his federal tax obligation by 35%. Taking the state and federal taxes together, the millionaire’s net state tax paid would be 5.85%, the lowest in the entire country. Who could argue against that?

  47. @50: “Who could argue against that?”

    Those of us who don’t think the state needs to be taking any money from people earning $20k a year, that’s who.

  48. Well, if they already pay 17.3% from their income now, what is worse about 9% coming off the top, leaving 91% to do whatever they want with it, TAX FREE? Out of the 9% paid to the state, they could draw unemployment and get Medicaid if they lose their jobs. In other words, they could have the satisfaction of paying their own way, just like we want the rich guys to do, instead of having to suffer the indignity of being called a lazy moocher who’s not contributing anything.

  49. Majormoron – The poor pay 17.3% presently and yet they still “suffer the indignity of being called a lazy moocher who’s not contributing anything”, most often by rightwing douchebags such as yourself. Eat a dick, fat boy.

  50. I am SO GODDAMMNED SICK of hearing about how the filthy stinking rich get everything and are SO untouchable!!
    TAX the FUCKING RICH ALREADY!!!!!!

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