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Opinion on I-1098: High-earners income tax - King Rat
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Opinion on I-1098: High-earners income tax
Initiative Measure No. 1098 concerns establishing a state income tax and reducing other taxes. The measure would tax “adjusted gross income” above $200,000 (individuals) and $400,000 (joint-filers), reduce state property tax levies, reduce certain business and occupation taxes, and direct any increased revenues to education and health.

This one is another easy one for me. Washington has one of the most regressive tax structures in the country, because it relies heavily on the business and occupation tax, and the sales tax. Both of those taxes make low income folks pay a larger percentage of their income in taxes than higher earners. The B&O tax because it gets passed on in prices, though a fair amount of it is non-consumer goods. As people make more money, the marginal sales tax rate with respect to a person’s income falls because consumption falls off at higher incomes. Money moves from consumption to investment. To explain, if you are broke, the next $5 you get will be spent on food (or gas, or whatever). If you made $1,000,000 last year, the next $5 will much more likely be used to buy stocks (or bonds or whatever). The sales tax on the poor person’s $5 is going to be approximately 50¢ where the sales tax on the rich person’s $5 will be close to zero. The choice to not spend is constrained the poorer one is.

We also rely heavily on a property tax, but that also gets passed on to anyone who lives in the state. It’s either direct, or paid out in higher rent. I don’t think property taxes are as regressive as the sales tax, but they are still regressive.

I1098 establishes a high earners income tax for the state, while cutting a portion of property taxes and B&O taxes. Income taxes can sometimes be regressive, but they are easier to structure to avoid it. In this case, it’s very progressive. People who need the next $5 to eat won’t get taxed. People who invest it in stock will. For that reason alone I am for it.

I also think it will help stabilize the state’s revenue somewhat. Not completely, but a bit. Aggregate income is a better gauge of the state’s economic activity than consumption. Consumption can only drop so low, and it can only climb so high. It allows the state to skim off the income in good years for the bad. We currently do that with sales taxes, to some degree.

The only arguments I’ve seen against it are hysterical rantings. The legislature will extend it to other people in 2 years!! Yup. They could. They could establish an income tax and extend it right now. This changes nothing with regard to what the legislature could do. And it changes nothing as far as people’s ability to oppose it. If people are against increasing the tax, and the voters don’t want it, they’ll vote them out. Or have a referendum against the law.

I’ve also seen but I’m not rich even though I made nearly $2,000,000 last year. And even no one I know who makes $200,000 is rich. It’s not fair to MEEEEE! Here’s something to think about: SHUT THE FUCK UP! You are rich. This is not the end of the world. You can better afford this than someone making $20,000. They’ve been sucking it up for years. Now you’ll have to for a bit.

By the way, in case you were wondering, these opinion piece aren’t really intended to convince people. These are polemics which explain my reasoning for voting for them. I fully realize telling a rich person to STFU isn’t going to convince them to vote for this.

crossposted from King Rat.

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Comments
autonomic_pilot From: autonomic_pilot Date: October 13th, 2010 12:09 am (UTC) (Link)
I have been looking at this for a while too. It certainly doesn't affect me because I don't make anything near the 200k required. It does affect just about every single one of my WA clients and they talk about it.

What I took away from their statements:

If I ever do get close (and it would likely be through the sale of my biz), then I would make a plan to ensure my earnings fall well below the margin per year where the buyer pays me over a longer period or, more likely, I'd just move my business out of this state and establish a residency elsewhere to serve the purpose.

Ultimately, rich people are rich because they're good at maneuvering around tax laws like this one. There are plenty of ways to make your "adjusted gross income" look like it's a lot less due to non-monetary compensations, divided residency, shelters, foreign tax credits, etc.

In the end, I'm quite undecided about how I'll vote on this one. I agree with all your points about letting a 20k-earner spend more on their own well being and less on taxes through that spending, but I'm also wary of a tax plan that endangers my business (through my clients) or the eventual income that I hope to make (a good problem to have).

It'll be interesting to see how this one plays out.
gkr From: gkr Date: October 13th, 2010 12:17 am (UTC) (Link)
36 other states already have income taxes. Where are they going to shift their residency to avoid income tax? Everyone can't move to Alaska. They haven't been moving here to avoid taxes in other states.


autonomic_pilot From: autonomic_pilot Date: October 13th, 2010 12:24 am (UTC) (Link)
Most of the guys I work with have a multitude of homes spread across the world... and from what I gather they're able to show enough activity in those other places to avoid a fairly decent amount of tax liability here.
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