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An income tax to throw good money after bad

Post by Patrick O'Callahan on Sep. 23, 2010 at 7:35 pm |
September 23, 2010 5:44 pm

This editorial will appear in tomorrow’s print edition.

Initiative 1098 is the most slickly packaged measure on the November ballot.

It would enact a new income tax on wealthier Washingtonians – 5 percent on individuals earning more than $200,000 a year or couples earning more than $400,000. If the idea of soaking the rich doesn’t quite close the deal, the initiative throws in two other sweeteners: a 20 percent cut in the state property tax and a higher exemption from the state business and occupation tax.

The latter two provisions allow its supporters to tout I-1098 as a tax cut. Which it is – except for the fact that it raises four times as much in taxes as it cuts.

In fact, the “middle class tax relief” it would deliver to homeowners would be barely perceptible: Because the state’s share of property taxes is small, a reduction of 20 percent would translate into savings of about 4 percent.

Clear away the clutter, and I-1098 is an attempt to create a tiered income tax without benefit of an amendment to the Washington Constitution. The state supreme court has forbidden that in the past; the initiative’s sponsors are hoping today’s justices will have different ideas when I-1098 inevitably hits the courts.

The measure has several strikes against it: It may be illegal; it would target wealth-creation in the middle of a recession, and it would enact an income tax with no constitutional limits or corresponding constitutional caps on other state taxes.

Another problem hasn’t gotten enough attention: where the money goes.

Presumably on the advice of smart marketers, I-1098’s supporters decided to add yet another sweetener by earmarking the entire $2 billion-something in new revenue to schools and health. Specifically, 70 percent would go to education, the remainder to health care and prevention efforts.

This makes for wonderful political spin, but it’s a formula for throwing good money after bad. Writing enormous blank checks to state education and health programs is likely to help perpetuate status quos that desperately need shaking up.

Constitutionally protected, Washington’s K-12 system is the least vulnerable part of the state budget and the part most impervious to reform. What it needs more than money is a top-to-bottom overhaul that insists exclusively on results and learning.

Same with health care. Medical expenses have long been eating the state alive. A measure that simply pumps $600 million a year into the system without leave from lawmakers would do nothing more than feed an ever-more-ravenous beast.

An income tax might conceivably be a good idea – if it were structured carefully, constitutionally limited and not designed to slough fortunes into hole-riddled buckets. I-1098 doesn’t remotely fit the bill.

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