Business Columns & Blogs

Are the stars finally aligning for a Washington state income tax?

How to log in to your News Tribune account

If you're a print subscriber and need help logging in to your News Tribune account online, follow the steps in this handy video guide.
Up Next
If you're a print subscriber and need help logging in to your News Tribune account online, follow the steps in this handy video guide.

There aren’t many subjects or topics on which we as Americans or Washingtonians can reach agreement, but there is one on which consensus is near universal.

No one likes the tax system as it is now.

What no one agrees on is just what is wrong with taxes and how they ought to be changed or “reformed.”

Either they’re too high or too low or not high or low enough on the right people or not “progressive” or “fair” enough or too complex or not complex enough or used too often to encourage certain activities or reward political allies or not used enough to reward or punish … and there’s probably a few dozen more complaints and objections that could take up the rest of this paper.

Recent news events won’t help quell those objections. If anything, they’re the equivalent of tossing a can of gasoline and all the leftover firecrackers on an already raging bonfire.

We’ll start with the ruling from the state Court of Appeals on the city of Seattle’s attempt to impose an income tax, labeled a “wealth tax” in an inartful attempt to get around the state’s longstanding legal barriers (through constitutional language and court rulings) and public antipathy (reflected in multiple votes) to an income tax. Seattle was attempting to impose a 2.25 percent tax on income above $250,000 for individuals and above $500,000 for married couples.

It was that tiered system that got the tax in trouble with the court.

“We are constrained by stare decisis (a legal term meaning ‘don’t screw around with precedent established by previous court decisions’) to follow our Supreme Court’s existing decisions that an income tax is a property tax,” the ruling said. “We have no authority to overrule, revise, or abrogate a decision by our Supreme Court. We conclude Seattle has the statutory authority to adopt a property tax on income, but our state constitution’s uniformity requirement bars Seattle’s graduated income tax. Therefore, the Seattle income tax ordinance is unconstitutional.”

Did you catch that sentence buried in the middle of that paragraph? Seattle can enact an income tax, the court said, but it has to be the same rate for everyone. Who knew the salvation of the idea of a Washington income tax would come from an idea beloved in some conservative circles — the flat tax?

Of course, the flat tax is not the final destination the pro-income-tax faction is journeying toward, but hey, whatever route works.

Next stop is the state Supreme Court, which could use the Seattle case to revisit the original argument, decided in a narrow vote in the 1930s, as to whether income is in fact property. The age of that ruling, coupled with the contemporary court’s political leanings, is what makes revenue-hungry counties and municipalities (that would be all of them) so excited, and taxpayers so nervous.

Obscured by that controversy was the release of a report issued by the Joint Legislative Audit & Review Committee on 17 tax incentives, most having to do with the aerospace sector.

The state’s tax code, like that of the feds, is already riddled with carve-outs, exemptions, favors and other goodies. The Department of Revenue has published on its website a lengthy list of the breaks enacted just in the most recent legislative session. Many of those were for clean energy (including solar installations) and green transportation (including electric-powered cars, buses and boats).

It wasn’t Christmas for everyone. Legislators also imposed new or additional taxes on certain large financial institutions and the sale of vaping products.

The debate over tax favors and goodies, including their effectiveness and fairness to those who aren’t so blessed, is good for an entire book on its own. Then there’s Volume II, the philosophical argument of whether an incentive really costs anything if, in its absence, the underlying economic activity wouldn’t have occurred.

The legislative audit committee’s review of the aerospace incentives makes for interesting reading, given their long and contentious history (not only inside Washington state but as part of global trade-dispute cases).

The Legislature enacted a package of incentives in 2003, then extended them in 2013 amidst the Boeing 777X competition and the ongoing fears (fueled by the move of the headquarters to Chicago and opening a 787 line in South Carolina) about the company’s future in this state.

Did the incentives accomplish what the Legislature hoped?

“The aerospace industry remains in Washington, and its employees earn wages above the state average and are provided benefits,” the report says. “However, aerospace employment is lower than it was in 2013. It is unclear whether the preferences prevented greater job losses. If the preferences led Boeing to remain in Washington, they may have kept the state from losing more jobs.”

The report concludes with a non-conclusion:

“The Legislature should clarify its expectations for the level of aerospace industry employment. Providing additional detail in the tax preference performance statement such as a baseline level of employment would facilitate future reviews of these preferences.”

That’s been a big issue in recent years due to the unhappiness created every time Boeing reduces employment or shifts work out of the state. It’s not a big issue at the moment only because there are other tax issues to fight over (see: income tax) and because Boeing is too focused on trying to resolve its current 737 Max-related mess to get much involved in public bickering over incentives for locating assembly work on its next plane model.

But if Boeing does get some resolution to the Max debacle, and it decides to do a new plane (either a 737 replacement or a new middle-market aircraft), then aerospace tax incentives will return to the forefront as a major political issue. By then we’ll be on to the next phase of the fight over an income tax, which has only been going on in this state for more than 85 years.

Whatever happens, here’s one prediction that can be made with a huge degree of certainty: Just about everyone will hate the tax system of the moment, and they won’t be any happier with what replaces it.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.
Related stories from Tacoma News Tribune

  Comments