State Treasurer Jim McIntire

Yes­ter­day, State Trea­sur­er Jim McIn­tire — who is respon­si­ble under state law for man­ag­ing and over­see­ing the invest­ment of the pub­lic’s mon­ey — unveiled a rather grand and ambi­tious plan for reform­ing the state’s tax code, which he says he hopes will be a “con­ver­sa­tion starter”. The plan would dra­mat­i­cal­ly alter Wash­ing­ton State’s tax struc­ture (most­ly in good ways), but at an unac­cept­able cost.

McIn­tire’s pro­pos­al, which does not have the sup­port of the gov­er­nor or any cau­cus of the Leg­is­la­ture, was draft­ed in con­sul­ta­tion with Super­in­ten­dent of Pub­lic Instruc­tion Randy Dorn. Dorn has repeat­ed­ly called on the Leg­is­la­ture to put more mon­ey into pub­lic edu­ca­tion to com­ply with the Court’s McCleary decision.

Dorn and McIn­tire both sit on the side­lines of the bud­get­ing process. While each has a bul­ly pul­pit as an offi­cer with­in Wash­ing­ton’s exec­u­tive depart­ment, nei­ther has a vote or much of a say in bud­get nego­ti­a­tions. Nor do McIn­tire and Dorn have the abil­i­ty to alter the bud­get after it leaves the Leg­is­la­ture. (Gov­er­nor Jay Inslee, on the oth­er hand, has this pow­er thanks to his line-item veto pen.)

The plan McIn­tire and Dorn have come up with cer­tain­ly fits with the apho­rism Go big or go home. While we appre­ci­ate their will­ing­ness to put bold ideas on the table and stand behind those ideas, they’ve pro­duced a pro­pos­al that has some­thing for every­one to dis­like. It is too flawed, in our view, to mer­it fur­ther consideration.

Let’s take a look at an out­line of McIn­tire’s plan, and then I’ll explain what we mean. McIn­tire begins by not­ing that our tax code is extreme­ly regres­sive (it’s the worst in the nation) and also very unsta­ble, owing to our reliance on con­sump­tion tax­es for rev­enue. It’s sim­ply not a sys­tem that can car­ry our state for­ward as we move fur­ther into the twen­ty-first cen­tu­ry. That we agree with.

McIn­tire’s pre­scrip­tion for fix­ing this is as fol­lows:

  • Elim­i­nate the state prop­er­ty tax, low­er reg­u­lar prop­er­ty tax lim­its, and lim­it excess local school levies;
  • Set the B&O (busi­ness and occu­pa­tion tax) rate at 1.0 per­cent for busi­ness ser­vices and at Boeing’s 0.29% for all others;
  • Cut the state sales tax to 5.5 percent;
  • Cre­ate a con­sti­tu­tion­al 5 per­cent flat rate income tax ded­i­cat­ed to edu­ca­tion (with a $50,000 deduc­tion for a typ­i­cal fam­i­ly of four); and
  • Require a three-fifths vote of the leg­is­la­ture to make any changes to the income, sales or B&O rates.

Let’s break down the prob­lems with this proposal.

First, the bar for suc­cess is too high. Notice that McIn­tire and Dorn’s plan relies on a con­sti­tu­tion­al amend­ment, which requires a two-thirds vote of each house of the Leg­is­la­ture and a vote of the peo­ple to pass. That’s a huge lift.

A cam­paign of this mag­ni­tude and dif­fi­cul­ty requires years of ground­work and a major, sus­tained invest­ment of time, tal­ent, and trea­sure, not to men­tion buy-in. It cer­tain­ly isn’t some­thing that could be done in the cur­rent ses­sion or the next one.

We’ve heard that Dorn is plan­ning to retire as Super­in­ten­dent of Pub­lic Instruc­tion. If that’s true, by the time Jan­u­ary 2017 rolls around, he’ll be leav­ing office, and won’t be in a posi­tion to advo­cate for this pro­pos­al as an elect­ed leader.

We do not have the lux­u­ry of wait­ing or the capa­bil­i­ty to dither and pro­cras­ti­nate on tax reform any longer. In the short term, we need to take small and con­crete steps to raise rev­enue to keep our vital pub­lic ser­vices from falling apart. Long-term, we need to lay the ground­work for big­ger steps that will be a hard­er sell.

We’ve known for decades that our tax code needs over­haul­ing, but in that time, we’ve most­ly suc­ceed­ed in mak­ing it worse, not bet­ter. Law­mak­ers have talked plen­ty about reform, and stud­ied the prob­lem, but haven’t acted.

Even when the Leg­is­la­ture was con­trolled by Demo­c­ra­t­ic super­ma­jori­ties in 2007 and 2008, the polit­i­cal will to pur­sue com­pre­hen­sive reform was­n’t there.

Repub­li­can Gov­er­nor Dan Evans, con­sid­ered by many to be the finest and most effec­tive gov­er­nor in Wash­ing­ton State his­to­ry (so pop­u­lar, in fact, that he won three con­sec­u­tive terms) tried repeat­ed­ly in the 1970s to pass a con­sti­tu­tion­al amend­ment explic­it­ly allow­ing the state to levy an income tax.

Amaz­ing­ly, Evans was twice able to secure a two-thirds vote of each house of the Leg­is­la­ture to pass an amend­ment. He even had the sup­port of The Seat­tle Times in his efforts. (Back then, the Times edi­to­r­i­al board was much more progressive).

But he was unable to per­suade a major­i­ty of Wash­ing­to­ni­ans to agree, and the amend­ments died at the bal­lot box, leav­ing his tax reform efforts on ice.

The last time the peo­ple of Wash­ing­ton vot­ed for a pro­pos­al to cre­ate an income tax was in the 1930s, dur­ing the ear­ly depres­sion years.

Sad­ly, the Wash­ing­ton State Supreme Court struck down that ini­tia­tive, which is why Evans and the Leg­is­la­ture sought to amend the Con­sti­tu­tion instead of sim­ply impos­ing an income tax through statute.

The log­ic the Court relied on to reach its deci­sion makes no sense to us, and we sus­pect that today’s Court would dis­card the prece­dent if it had the chance to.

But today’s Leg­is­la­ture is not inter­est­ed in levy­ing an income tax. Demo­c­ra­t­ic leg­isla­tive lead­ers haven’t even put the idea on the table, pre­fer­ring to join Gov­er­nor Inslee in coa­lesc­ing behind a mod­est cap­i­tal gains tax.

They rec­og­nize the ground­work has not been laid yet. There’s a lot of edu­ca­tion and out­reach that needs doing before we can move from con­ver­sa­tion to action.

In the mean­time, small­er-scale actions (like cre­at­ing a cap­i­tal gains tax) need to be tak­en to bol­ster con­fi­dence in state gov­ern­ment and shore up our treasury.

The sec­ond prob­lem with the McIntire/Dorn pro­pos­al is that it elim­i­nates the state prop­er­ty tax levy, while leav­ing the busi­ness and occu­pa­tion tax in place.

For those who don’t know, the B&O tax is a tax on a busi­ness’ gross receipts. It’s wide­ly con­sid­ered to be unfair and prob­lem­at­ic. But, bizarrely, the McIntire/Dorn pro­pos­al keeps the B&O tax instead of scrap­ping it, while at the same time elim­i­nat­ing the state prop­er­ty tax levy… which is exclu­sive­ly devot­ed to our state’s schools and is a much more sta­ble source of rev­enue than the sales tax.

McIn­tire, who served as a mem­ber of the Wash­ing­ton State Tax Struc­ture Study in 2001–2002, ought to be famil­iar with the con­clu­sions of that report, which called for the B&O tax to be done away with. As the report’s con­clu­sions sec­tion declares:

Our busi­ness and occu­pa­tion tax is a dra­mat­ic vio­la­tor of the prin­ci­ple of neu­tral­i­ty among like busi­ness­es. The pyra­mid­ing of this tax on goods as they move through the pro­duc­tion chain is a fun­da­men­tal prob­lem that requires correction.

Nobody in Wash­ing­ton seems to like the B&O tax… and no oth­er state in the Union levies a com­pa­ra­ble tax… so why keep it?

We think McIn­tire’s approach here is backwards.

We should keep the state prop­er­ty tax levy (though change it to be more pro­gres­sive) while repeal­ing the busi­ness & occu­pa­tion tax. We could replace it in whole or in part with a val­ue-added tax (VAT) as the study com­mit­tee rec­om­mend­ed, pol­lu­tion penal­ties from cap and trade, or a tax on busi­ness income.

The details can be worked out, but the bot­tom line is, removal and replace­ment of the B&O needs to be part of any cred­i­ble pro­gres­sive tax reform plan.

The third prob­lem with the McIntire/Dorn pro­pos­al is that it sets up an income tax with a flat rate instead of a grad­u­at­ed rate.

Con­vinc­ing the peo­ple of Wash­ing­ton to sup­port a state income tax is going to take a lot of work. So long as we’re putting in the effort to build pub­lic sup­port for this incred­i­bly impor­tant change, we ought to go with a grad­u­at­ed income tax that is based on abil­i­ty to pay. Wealthy fam­i­lies should be asked to pay a high­er rate than low­er and mid­dle income fam­i­lies, like they do at the fed­er­al level.

A grad­u­at­ed income tax is both fair and sensible.

Con­sid­er the anal­o­gy of a sports club where mem­bers are asked to pay dues. The club’s golf course, bas­ket­ball court, and fields (for vol­ley­ball, grid­iron, soc­cer, base­ball, etc.) can’t be main­tained for free. Some­one has to keep up the grounds and mon­i­tor their secu­ri­ty. Hence, club mem­bers pay dues, and dues are means-based. The most well-off mem­bers of the club serve as its patrons and bene­fac­tors, and may even offer to match con­tri­bu­tions made by less-wealthy members.

That’s the same prin­ci­ple we need gov­ern­ing our tax code.

Con­trary to what the rad­i­cal right says, it’s not about pun­ish­ing suc­cess. It’s about pay­ing it for­ward. There are no self-made men or women in this coun­try. Every­body who suc­ceeds in busi­ness does so using the infra­struc­ture and pub­lic ser­vices paid for by the tax­pay­ers, and should con­tribute back, so that our com­mu­ni­ties remain strong and vibrant. It’s patri­ot­ic to be a taxpayer.

The fourth and most seri­ous flaw in the McIntire/Dorn plan is the pro­pos­al to require a three-fifths vote of the Leg­is­la­ture to change the rates of the state’s major tax­es going for­ward. We are com­plete­ly, firm­ly opposed to this.

Bud­gets and bud­get­ing deci­sions should be reached by major­i­ty vote, as pro­vid­ed for in Arti­cle II, Sec­tion 22 of our Constitution.

Our founders gave care­ful thought to what thresh­old was appro­pri­ate for pas­sage of leg­is­la­tion, and they set­tled on a major­i­ty vote, because it’s the only stan­dard that makes sense in a democ­ra­cy. They thought­ful­ly gave us a plan of gov­ern­ment that bal­ances major­i­ty rule with minor­i­ty rights. We should not upset that balance.

I’m guess­ing that McIn­tire and Dorn includ­ed this ele­ment in the hopes that it would lead to some Repub­li­can buy-in. But it won’t. Repub­li­cans are sim­ply not inter­est­ed in a grand bar­gain with Democ­rats on tax reform.

Nei­ther is the man that many of them take their cues from: Tim Eyman.

Eyman will set­tle for noth­ing less than total capit­u­la­tion from Democ­rats. He’s present­ly work­ing to qual­i­fy an ini­tia­tive to the bal­lot that tries to black­mail law­mak­ers into pass­ing a con­sti­tu­tion­al amend­ment to over­turn League of Edu­ca­tion Vot­ers. His incred­i­bly destruc­tive I‑1366 would cut the state sales tax from 6.5% to 5.5%, result­ing in the loss of about a bil­lion dol­lars per annum, if the Leg­is­la­ture does­n’t do as he wish­es by April of next year.

McIn­tire and Dorn cer­tain­ly deserve cred­it for prod­ding the Leg­is­la­ture to think big­ger. Unfor­tu­nate­ly, the plan they’ve put on the table to serve as a “con­ver­sa­tion starter” is a non­starter. It gets too much wrong, and there­fore should­n’t be the basis for what the pro­gres­sive com­mu­ni­ty in Wash­ing­ton uses to con­struct a win­ning frame­work for a com­pre­hen­sive, mean­ing­ful over­haul of our tax code.

About the author

Andrew Villeneuve is the founder and executive director of the Northwest Progressive Institute, as well as the founder of NPI's sibling, the Northwest Progressive Foundation. He has worked to advance progressive causes for over two decades as a strategist, speaker, author, and organizer. Andrew is also a cybersecurity expert, a veteran facilitator, a delegate to the Washington State Democratic Central Committee, and a member of the Climate Reality Leadership Corps.

Adjacent posts

2 replies on “Analysis: State Treasurer’s grand tax reform plan is fatally flawed, shouldn’t move forward”

  1. I’m curi­ous as to how they could get rid of the cur­rent sys­tem of prop­er­ty tax­es. Any and all bonds,schools and much of our infra­struc­ture is based off of our prop­er­ty tax. How would all of the pre­vi­ous bond/proposition/initiatives be funded?

    Also I dis­agree with “A grad­u­at­ed income tax is both fair and sen­si­ble.” I’m not for an income tax to begin with but to me a flat tax is a bit more fair. Every­one pays the same per­cent­age, we’re all on the same ground.

  2. @Dan, sure we’re all on the same ground as far as the amount goes, but not when you con­sid­er the amount as a per­cent­age of income, which you should. Say I can lift 60 lbs: an ant can’t do that! How­ev­er, per­cent­age-wise, an ant can lift 100x it’s own body weight. Do you see what I’m get­ting at? So when poor peo­ple and rich peo­ple pay the same amount, they’re not real­ly pay­ing the same amount rel­a­tive to their incomes — get it? And that’s why we invent­ed per­cent­ages, to help com­pare things that are different.

Comments are closed.