Here in the majestic Pacific Northwest, in the great State of Washington, we have much to be thankful for and proud of. We are a national leader advancing worthy ideas like environmental stewardship, fair pay, and sensible gun safety laws.
Unfortunately, there’s one area where we rank dead last among all fifty states, and that is our means of financing the essential public services we rely on every day. We have the most upside down, regressive tax code in the country. Those with the least pay the most as a percentage of their income, while those with the most pay the least. It’s an unjust, archaic, and indefensible system, but we’ve been stuck with it because our Legislature keeps squandering opportunities to reform it.
Whether this sad state of affairs continues to persist will depend in part on what happens this year in Washington’s 45th Legislative District, where voters must choose a new state senator to serve through the end of 2018.
If voters elect Democratic candidate Manka Dhingra, the Senate will flip Democratic and gain new leadership open to pursuing progressive tax reform.
On the other hand, if voters elect Republican Jinyoung Englund, the Senate will remain controlled by reform-averse Republicans until at least 2019.
At a debate on Monday evening, hosted by the League of Women Voters of Seattle-King County, Dhingra and Englund were asked what their idea of a fair and functional tax system for Washington State is. (Like NPI, the League strongly believes reforms are needed to make our tax code fairer and more stable.)
The candidates gave sharply different answers.
Speaking first, Dhingra correctly described Washington’s tax system as the most regressive in the country, and suggested that the first action the Legislature should take to remedy the situation ought to be a review of the state’s many corporate tax exemptions. People must be prioritized, she said.
Englund went second and spent most of her time denouncing the idea of a state income tax, which Republicans have been using for years as a bogeyman in an attempt to scare voters away from Democratic candidates, regardless of whether those candidates actually favor levying a state income tax or not.
But Englund didn’t stop there. She made it clear she doesn’t even think there’s a problem that needs solving at all, telling the audience, “I respectfully disagree that we have a regressive tax system in our state.”
Here’s the question and the entire answers given by both candidates for context:
MODERATOR NATALIE BRAND: What is your idea of a fair and functional tax and revenue system for the State of Washington?
DEMOCRATIC CANDIDATE MANKA DHINGRA: So we have the most regressive tax system in the country. The most! And that has to change. And the way we begin to start addressing this is by making sure we are rolling back the property tax increase that was imposed on us this year. And do that by really taking a look at the over nine hundred corporate tax exemptions that we have on the books.
It is time that we prioritize people, small businesses, and our children. We have to make sure that we are growing a healthy middle class — because that is the backbone of a great economy.
And that’s where you start. But you have to make sure that you are prioritizing people above everything else.
REPUBLICAN CANDIDATE JINYOUNG LEE ENGLUND: So to call… to call our tax system regressive is a party talking point.
And… and here’s the thing. If we want to talk about whether or not that’s true… if anyone who’s lived here for a long time knows that in Washington State, you know, a state income tax was proposed nine times. Nine times it was voted down, most recently in 2010 (I‑1098). Over 60% of Washingtonians voted it down. That means people who are middle income, people who are low income… you know, people like my family, who are blue collar working class, we voted against it. Because we don’t see it as a progressive tax.
We see Washington State being one out of seven states in the country having no state income tax… . that’s actually a competitive advantage. CNBC recently said that Washington State is one of the best to do business because we don’t have a state income tax.
And if we really want to have an honest and… and… serious conversation about tax reform, then what we need to do is we need to do a deep dive into our state spending.
And that’s not going to happen under one party government. It is only when each party are equals at the negotiating table, so that neither party can cater to their special interests, and now both must at some level compromise in order to come up with solutions for the people of Washington, that we’re actually gonna get real tax reform in our state.
It’s only when we have a balance of power that businesses, that community services, that people of all economic class levels are equally represented at the table that we’re gonna get actual, real tax reform for our state. And so, I, you know, I… I respectfully disagree that we have a regressive tax system in our state. Because I am for people, and not for parties. And the people of Washington State have been very clear in saying we do not want a state income tax. So you guys, hopefully, you know, one of us as legislators… Deal with it. Figure out a way to make the budget work without one.
I respectfully submit that Jinyoung Englund failed to answer the League’s question and demonstrated a lack of knowledge about our tax code. In the interest of correcting the record, I’m going to debunk her comments, line by line.
Let’s get started.
JINYOUNG LEE ENGLUND: So to call… to call our tax system regressive is a party talking point.
Considering that Jinyoung Englund’s campaign consists almost exclusively of party talking points, this seemed to me to be a lame attempt at an opening rejoinder.
In calling Washington State’s tax code regressive, Manka Dhingra was stating a fact… a well documented fact supported by data. In Washington State, the people with the most pay the least, and the people with the least pay the most. That, in a nutshell, is regressive taxation. Here is a longer definition from Wikipedia:
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. “Regressive” describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate. In terms of individual income and wealth, a regressive tax imposes a greater burden (relative to resources) on the poor than on the rich: there is an inverse relationship between the tax rate and the taxpayer’s ability to pay, as measured by assets, consumption, or income.
Here is a chart illustrating how regressive taxes are in Washington:
The less you make, the more in taxes you pay as a percentage of your income. If you make less than $21,000, you pay nearly 17% of your income in taxes. But if you make over $507,000, you only pay 2.4% of your income in taxes.
That’s not all. Our upside down tax code disproportionately impacts people of color, as they are more likely to be in that lowest income bracket than whites.
Here is a table from the Institute on Taxation and Economic Policy (ITEP) showing that Washington has the most regressive tax code in the country compared to the other forty-nine states in the Union. We even beat out Florida and Texas.
This is from the fifth edition of Who Pays?, a report ITEP updates every few years. Washington has consistently been ranked last among all the states in this report. Most of the “Terrible Ten” are red states that tend to vote Republican.
It is true that Democratic candidates and elected officials talk a lot more about tax fairness than Republicans do. That’s because they’ve seen the data and favor taking corrective action to improve our state’s fiscal health, whereas Republicans like Jinyoung Lee Englund unfortunately seem to have no interest.
I have heard more than one Republican say on the floor of the Legislature that we should not pursue progressive tax reform because it would be “punishing success”. Wrong! That is not what progressive tax reform is about.
In America, we pool our resources to get things done. It is the American way. We’ve been doing it for centuries. It is patriotic to be a taxpayer.
Taxes are investments. No businessperson succeeds in this state or country on their own. Every private business in this state depends on public infrastructure paid for by previous generations of Washington taxpayers. Every person who does well in business therefore has an obligation to pay it forward and enable future generations of workers and business owners to be successful.
Not everyone has the same means in our society. There is a huge disparity when it comes to wealth. That’s why we need a tax code based on ability to pay.
Let’s move on. Back to Jinyoung:
JINYOUNG LEE ENGLUND: Anyone who’s lived here for a long time knows that in Washington State, you know, a state income tax was proposed nine times. Nine times it was voted down, most recently in 2010 (I‑1098). Over 60% of Washingtonians voted it down.
This is not an accurate summary of efforts to levy an income tax in Washington.
Anyone who’s lived here for a long time and has bothered to study the electoral history of the state knows that the history of the movement to create a state income tax goes all the way back to the 1932 presidential election. That year, Washingtonians overwhelmingly voted to levy an income tax. An astonishing 70% of voters gave their blessing to Initiative 29, with only 30% opposed.
I‑29 might still be the law of the land today were it not for the state Supreme Court, which ruled it unconstitutional in a goofy decision many contemporary constitutional scholars feel was not well reasoned.
Subsequent attempts to amend the Constitution to overturn that ruling (in 1934, 1936, 1938, 1942, 1944, 1970, and 1973) were unsuccessful, by varying margins. In each case, the Legislature was able to agree by a two-thirds vote of each house on a desired amendment, but the amendments were rejected by the people.
More recently, as Englund mentioned, Bill Gates, Sr. spearheaded a statewide initiative to levy an income tax on the wealthy, which was easily defeated.
I‑1098 did pass in some places within Washington. Seattle was the largest jurisdiction in the state to support the initiative, but it wasn’t the only one, contrary to what Republicans have implied with their Seattle-bashing rhetoric. For instance, San Juan County and Port Townsend also voted in favor of I‑1098.
While it is true that no statewide vote in support of an income tax has succeeded since 1932, that doesn’t mean Washingtonians like the tax code that we have.
There is widespread enthusiasm for reforms that would make it fairer and bring in needed revenue for our public schools and essential public services.
In a survey conducted by Public Policy Polling for NPI last June, 60% of respondents said they agreed with the statement that Washington’s public schools are underfunded, and we need to raise revenue to fully fund them. 57% of respondents said they supported a capital gains tax as a way to do that.
Voters are more likely to entertain the idea of a state income tax in the future if the Legislature demonstrates it’s capable of taking basic steps to reform our tax code. Right now, people are skeptical — justifiably — that anything is going to change, because there has been a history of inaction. Elected representatives can earn voters’ trust starting in 2018 by delivering results instead of platitudes.
Levying a capital gains tax is one worthy tax reform idea that Washingtonians like, but there are other ideas the Legislature can pursue. For example:
- We ought to begin creating a tax expenditure budget and sunsetting tax exemptions that do not serve the public interest.
- Corporations that fail to deliver on their job creation promises or move jobs out of our state should automatically forfeit part or all of the tax breaks they previously received. (This is an idea that’s wildly popular across the state.)
- We should reform property taxes by repealing Tim Eyman’s arbitrary cap and relying on more progressive strategies for protecting homeowners, renters, and small business owners — strategies like a homestead exemption.
Back to Jinyoung:
JINYOUNG LEE ENGLUND: We see Washington State being one out of seven states in the country having no state income tax… . that’s actually a competitive advantage.
CNBC recently said that Washington State is one of the best to do business because we don’t have a state income tax.
Actually, CNBC ranked Washington as the best state in the country for business in 2017, not one of the best. We’re No. 1! And that’s not because we lack an income tax. It’s because despite having the country’s most regressive tax code, we scored well in a lot of areas that were important to CNBC’s methodology this year.
Washington’s foremost competitive advantage isn’t its present lack of an income tax… it’s our workforce. Yes, our workforce! That was the category CNBC gave the most weight to for 2017. Why? Well, I’ll let them explain:
Our aim is to grade the states based on the qualities they deem most important in attracting business. To do that, we assign a weight to each of our 10 categories by analyzing every state’s economic development marketing materials. The more the states cite a particular category as a selling point, the more weight that category carries. For example, if more states are talking about their workforce, the Workforce category carries more possible points.
Appropriately, CNBC cited Washington’s workforce as the state’s major competitive advantage. Here are the first five paragraphs of their commentary:
With the nation’s fastest-growing economy and an all-star business roster of household names and up-and-comers, Washington — the Evergreen State — soars above the competition as America’s Top State for Business in 2017.
The home of Amazon and Costco, Boeing and Expedia, as well as rising stars like Adaptive Biotechnologies, online marketplace OfferUp and space company Blue Origin, Washington has the old and new economies covered — as well as pretty much everything in between.
But the success story does not end there. At a time when the best workforce rules, Washington boasts the nation’s largest concentration of STEM (science, technology, education and math) workers. Nearly 1 in every 10 Washington workers is in those professions, according to the U.S. Bureau of Labor Statistics.
The University of Washington’s computer science school — recently named for one of the state’s most famous natives, Microsoft co-founder Paul Allen — is world class.
There is no brain drain here; no state does better at hanging on to its college graduates. And the state is consistently a magnet for investment capital. Washington businesses attracted nearly $1.6 billion in venture capital last year, the sixth-highest total in the nation.
The study commentary does note later on that Washington has no income tax, but it’s mentioned only in passing. In the very same passage, CNBC observes Washington State has a high cost of living. It must be noted that part of that high cost of living — for middle and low income families, at least — are regressive taxes like the sales tax and the business and occupation tax, which state and local governments are heavily reliant on because we do not levy an income tax.
Back to Jinyoung:
JINYOUNG LEE ENGLUND: And if we really want to have an honest and… and… serious conversation about tax reform, then what we need to do is we need to do a deep dive into our state spending.
And that’s not going to happen under one party government.
We have now had divided government in our statehouse for nearly five years. There has been ample opportunities for the Legislature to do a “deep dive” into appropriations. There have been ample opportunities not only to have conversations about tax reform, but to follow up with actions.
But that is not what we’ve seen.
Instead, the Legislature has struggled just to keep state government open, unveiling error-ridden budgets at the eleventh hour that have not been properly scrutinized. Three times in four years we’ve gone to the brink of a state government shutdown (2013, 2015, 2017). That did not happen in the years leading up to 2013 when Democrats were running both chambers.
JINYOUNG LEE ENGLUND: It is only when each party are equals at the negotiating table, so that neither party can cater to their special interests, and now both must at some level compromise in order to come up with solutions for the people of Washington, that we’re actually gonna get real tax reform in our state.
One more time: Divided government has not been a recipe for long overdue revenue reform or for budgets that lack the imprimatur of “special interests”.
Republicans showed a complete lack of interest in bargaining in good faith at the negotiating table this year. Instead, they tried over and over again to coerce Governor Inslee and House Democrats into betraying their values through hostage-taking tactics. This is why we don’t have a capital budget.
There have been some exceptions: the Connecting Washington transportation package, the watershed paid family leave legislation, a new safe driving law that bars use of handheld electronic devices while driving.
But the Legislature has not been anywhere near as productive or as effective as Washington’s families and businesses need it to be.
JINYOUNG LEE ENGLUND: It’s only when we have a balance of power that businesses, that community services, that people of all economic class levels are equally represented at the table that we’re gonna get actual, real tax reform for our state.
I have a bridge I’m ready to sell to anyone who believes this statement.
I got involved in politics over fifteen years ago. I’ve been championing tax reform pretty much that entire time, only to watch the Legislature fail to act repeatedly. In fact, the Legislature has made things worse by reinstating destructive Tim Eyman initiatives struck down by the courts and passing budgets that rely on fund transfers and accounting gimmicks to make the books balance.
The most counterproductive years have been the ones when Republicans had control of the Washington State Senate. When Democrats held both chambers, we at least got a few minor reforms — like simple majority for school levies.
I remember when the Washington State Tax Structure Study came out. This was at a time when Republicans had just won a narrow Senate majority.
Commissioned by the Legislature, it offered a series of well-thought out recommendations for the Legislature on how to improve the state’s fiscal health.
Dino Rossi (Jinyoung’s mentor and the appointed successor of Andy Hill) responded to the commission’s findings by dismissing its report. It was evident he just didn’t care about doing anything to make our tax code more progressive. And Rossi’s Democratic counterparts took note of that. Here’s a snippet from the Associated Press’ report about the completion of the study:
Lisa Brown, the outgoing Senate budget chairwoman, and House Finance Chairman Jeff Gombosky, D‑Spokane, will hold a joint hearing on Dec. 3, but neither expects a major tax overhaul in the 2003 session. “With Republicans running the Senate, it’s not going to happen,” Gombosky says.
Jeff Gombosky has long since retired. But what he said back in 2002 holds true today. As long as Republicans are running the Senate, tax reform is not going to happen. They have no interest in making our tax code fairer.
Remember, many Republicans don’t even think we have a problem:
JINYOUNG LEE ENGLUND: And so, I, you know, I… I respectfully disagree that we have a regressive tax system in our state.
These comments don’t change the fact that we have a tax code that obliges those with the least to pay the most and those with the most to pay the least. That’s immoral and unjust. Jinyoung, your opponent understands this. It’s truly disappointing that this isn’t an area where you and she have common ground.
JINYOUNG LEE ENGLUND: Because I am for people, and not for parties.
Riiiiight. That’s why, as a former Republican Party operative, you’re now running for the state Legislature as a Republican, and have accepted hundreds of thousands of dollars from multiple levels of the Republican Party. Because you are for people, not for parties. The Republicans recruited you to move into this district and run as their handpicked recruit for Senate, have supplied you with huge sums of money to ensure you’re competitive in your fundraising, and have devised your campaign strategy and talking points. But it’s not like you owe them anything…
… also, if you are sincere in your belief that one party rule is a bad thing and a balance of power leads to better results, you could prove that by helping elect a Democratic Congress or at least a Democratic House in 2018. Other Republicans have decided to put country ahead of party in next year’s midterms… will you?
JINYOUNG LEE ENGLUND: And the people of Washington State have been very clear in saying we do not want a state income tax. So you guys, hopefully, you know, one of us as legislators… Deal with it. Figure out a way to make the budget work without one.
We’ve already been doing that. Every budget in state history has relied on means of raising revenue other than a state income tax to fund vital public services… like the notoriously regressive and unstable sales tax, which provides less revenue to fund public services when consumer spending declines.
The choices we’ve made have not been without their costs.
It’s crucially important that voters in the 45th — and everywhere in Washington for that matter — understand that our upside down tax code is the principal barrier holding us back from meeting our constitutional and moral obligations to each other. Chief among these obligations is the education of our youth.
Our Constitution plainly says it’s our paramount duty to amply provide for the education of all youth residing within Washington’s borders. But we aren’t doing that. The Supreme Court ruled over five years ago in the McCleary case that our public schools were unconstitutionally underfunded, and ordered the Legislature to get to work rectifying the situation. Sadly, little progress has been made.
To the dismay of the Supreme Court, the Legislature has struggled mightily just trying to reach agreement on budgets that modestly increase education funding. Actually resolving the McCleary case and satisfying the Court’s orders would require raising or recovering a substantial amount of revenue.
That could be done without asking most Washingtonians to pay more. Washington is home to many wealthy people who are presently paying a lot less of their income in taxes than middle and lower income families are — as the above data shows.
Governor Jay Inslee and House Democrats have proposed reforms like the aforementioned capital gains excise tax on high earners that would require the wealthy to step up to support our schools and other public services.
Republicans have shot them all down, turning the Washington State Senate into a graveyard of progress. (That’s what GOP really seems to stand for these days.)
Republicans seem determined to protect the status quo at any cost. They have made it very clear they are not interested in reforming the state’s tax code.
The status quo suits them just fine. It gives them perpetual fodder for future campaigns and ideological attacks intended to undermine trust in government.
Frustrated Democratic legislators are understandably tired of these power games. Having to cut deals with Senate Republicans just to keep state government open every two years has been exhausting and draining.
If voters in the 45th fire the Senate Republicans by electing Manka Dhingra — who understands that our regressive tax code is holding us back — it’ll be a new day in Olympia, and the Senate and House will each have leadership interested in governing cooperatively to build an inclusive economy and society for Washington.