- WE HAVE THE MOST REGRESSIVE TAX SYSTEM IN THE NATION We need to fix that.
I have spent the last several months talking to thousands of people at their doors in Seattle, Skyway, and Renton. I’ve gone to dozens of endorsement interviews—with business and labor, with newspapers like The Seattle Times and The Stranger, with environmental and women’s rights organizations. The good news: we do agree on some big pieces of what we want from state government.
We want our kids to get a good basic education. We want a higher education system that doesn’t leave students crippled with debt. We want a transportation system that has good roads for different modes of transport and efficient public transit. We want a healthcare system that addresses our needs, from primary health to emergency care and help for the mentally ill. And we want government to use our money wisely, in ways that create solutions and build the future for our state.
Talking about what we want taps into the deep vein of hope for a better future that still exists across class, party, and race. This hope bridges the interests of businesses and working families. It reminds us that there is real common ground to be had and real community to build and nurture.
The problem, however, is that the reality of people’s lives is far from the desired. In the past four years, the state legislature has slashed spending by over $10 billion, with drastic consequences to the very issues people care most about.
The state has hiked tuition costs by more than a third for college (where the state once paid 70 percent of a student’s college costs, today it only pays 30 percent). In K-12 education, Washington ranks 49th in the nation for spending per student relative to income, and 47th in the country for class size. The opportunity gap is enormous for kids of color, who make up almost 40 percent of kids in the state. We are behind on maintenance for our highways and roads, so it is increasingly difficult to transport goods from our orchards to our ports. We have slashed public transit even as our population that depends on transit is growing. We also have Constitutional obligations to meet around a chronically underfunded mental health system.
In addition to all of this, the Supreme Court recently gave the state legislature one more session to “purge” the court’s finding of contempt by actually meeting lawmakers’ obligations on public education. This makes the challenge of the next legislative session—and the next several years—clear. Our legislature and our state’s residents must figure out where the money will come from so that we can fund the common investments we all agree we want. Funding education by cutting all the other supports that kids and families need to be healthy is simply not an option.
I believe that to keep our economy healthy for all families while addressing the myriad needs of a diverse and growing population that aspires to something better, we need revenue that is three-legged, follows the money, and is right-side-up.
We all know that a three-legged stool is more stable than, say, a one-legged stool. The more diversified our revenue sources are, the more stable the state will be. Looking around the country, we see that states that weather recessions best are those that generate revenue by taxing some combination of sales, income and property. That’s because each type of tax responds slightly differently to economic conditions and has different propensities for growth and volatility.
Here in Washington, we’ve essentially put all our eggs in one basket. We rely on a retail sales tax for 60 percent of all revenue, we have no income tax at all, and our property taxes are capped. Next door in Oregon, they have problems, too, with only an income tax and no sales tax—which is why Oregon’s governor has made reforming the tax structure central to his agenda.
Today, Washington State's over-reliance on sales tax means that our state is among the worst in the country at recapturing revenue even as the economy rebounds from recessions. If we add or increase other forms of revenue in our state tax mix, we could benefit more quickly from growth in the economy, and be more resilient in responding to downturns.
Follows the Money
Part of the reason for this lack of revenue growth relative to income is that our tax base isn’t growing. Instead, it’s shrinking. We need to follow the money, and the money is not in taxing goods. Our economy has moved from a goods economy to a services economy, which means there’s fundamentally fewer goods to tax. On top of that, the sales tax is so regressive that we have to mitigate its impact by exempting huge categories (like food and healthcare) from being taxed. That is completely the right thing to do, but it also means that, in reality, only one-third of consumer spending gets taxed in Washington State.
The mismatch of revenue to economic growth shows up in the numbers. Washington has gone from being 11th in 1990 to 35th in 2011 in terms of state and local tax collections relative to income. In other words, at the very time our state has been growing in population, needs, and overall wealth, the state has been taking in less of that wealth in taxes. Practically, this means that in 1990, Washingtonians paid about 7 percent of their income in taxes while in 2011, we paid about 5 percent of our income in taxes.
Here’s the kicker: if we were paying that same 7 percent of income in taxes today, we’d have about $15 billion in additional revenue for the current biennium. Our problems in finding funding for education, transportation and health care would be solved.
Revenue that grows with the economy includes revenue forms such as an income tax, capital gains tax, or estate tax. These kinds of taxes take advantage of economic growth. Adding additional forms of revenue also means we could consider reducing sales tax and revamping B&O taxes to help small businesses. We would bring about stability and dynamism all at once.
Which brings us to making our tax system right-side-up. In Washington today, the people who have the least income and wealth pay the most in taxes. That’s why I also heard so much at the doors from working families who feel like they are paying too much in taxes. They are. It’s topsy-turvy. Today, the bottom 20 percent of income earners pay about 17 percent of their income in taxes while the top 1 percent pays about 2.7 percent.
That just doesn’t give working people a fair shake at opportunity. It’s why Washington ranks as the most “upside down” (regressive is the technical term) state in the country for taxes, way “ahead” of Florida, Texas and Arizona. Moving to a state tax system that reduces the sales tax and adds in some combination of graduated income taxes, capital gains, estate taxes, and property taxes (re-engineered to limit the total property tax paid as a percent of income) gets our revenue system right-side-up and growing with the economy. And, by keeping money in the pockets of folks at the bottom we boost our economy because they will turn around and spend it right now on basics for their families.
The Urgency of Now
It’s clear that we have urgency and opportunity in Washington. We got ourselves into this mess and we can get ourselves out again. The Supreme Court has mandated action, and things we thought were never politically possible have happened—marriage equality, the Dream Act, and a $15 minimum wage in two locations. We can re-invest in our state but it takes leadership, courage, and organizing.
In the short-term, we have to come up with a plan that purges the Supreme Court’s finding of contempt and gets us on the right road again. Everything should be on the table, including capital gains and estate taxes, reviewing tax breaks and loopholes, and instituting a more equitable property tax distribution. This next legislative session is an opportunity to show that we can work across the aisle and lay the groundwork for a longer-term reform of our revenue system.
But we also need to be realistic. Meaningful tax reform is not going to come all at once. We need to invest—now—in a real multi-year education and organizing campaign that moves us toward that three-legged stool. We need businesses to recognize that future profits depend on investments in education, infrastructure and living wages, and we need them to come to the table ready to find that investment capital (or, to put it in other terms, ready to find state revenue that matches the state’s needs). We need labor unions, environmental groups, and women’s and social justice groups to put money and time into a real campaign to educate their constituencies about what’s wrong and how to make it right. We need opinion-makers to be real about where we are, and to engage in a real discussion about what’s wrong and what it will take to get the money to fix the state’s problems.
We have to do this door-to-door, member-to-member, business-to-business, and across the state, not just in Seattle. We have no choice. Our state’s future depends on it.
Pramila Jayapal is a candidate for the Washington State Senate from Seattle's 37th District.