Congressional Democrats decided to adjourn last week without a vote to extend the Bush tax cuts. Meanwhile, more than 3,000 miles away, another tax debate is heating up.
Washington is currently one of seven states without an income tax. But that could change on November 2 if voters approve ballot measure 1098, an income-tax initiative targeting the state’s highest earners.
I-1098 would impose a 5 percent tax on any income above $200,000 for individuals and $400,000 for couples. Individuals making more than $500,000, or couples making more than $1 million, would have their income taxed at a rate of 9 percent. Both sides of the issue have attracted big names, and millions of dollars, to their cause.
Bill Gates Sr., father of Microsoft cofounder Bill Gates, helped draft the initiative and has become the public face of I-1098. Gates Sr. has contributed $500,000 to the Yes on 1098 campaign. Big Labor has given millions in support, including $1.2 million from the Service Employees International Union.
On the other side, Microsoft CEO Steve Ballmer, Amazon.com CEO Jeff Bezos, and former Seattle SuperSonics owner Barry Ackerley have given $100,000 each to defeat the measure. In total, each side has raised about $3.5 million, and the campaigns are just getting into full gear. “Before it’s over, businesses will have spent a ton of money to defeat , and the unions will have spent a ton of money for it,” a former state political aide said.
Joshua Culling, state-affairs manager for Americans for Tax Reform, said I-1098 would mirror the negative economic impact of allowing the Bush tax cuts to expire on the wealthiest earners.
If the initiative passes and the Bush tax cuts are allowed to expire, Culling says, Washington taxpayers — including many small businesses — would be hit with a “taxation double whammy” that would seriously harm the state’s economy and prompt many state-based businesses to seek more favorable tax environments in other states. According to a list compiled by the Tax Foundation in 2009, Washington had the ninth-best state business environment in the country, and its lack of a state income tax is a primary reason.
Washington’s most renowned company, Redmond-based Microsoft, has no official position on the initiative, but a spokesman has said that a number of senior executives “are concerned about the impact I-1098 will have on the state’s ability to attract top tech talent in the future.”
Opponents worry not only about what they see as the short-term economic impact — stunting growth and discouraging job creation — but about the long-term ramifications of setting an income-tax precedent, with no guarantee that the income tax will not be extended to all citizens a few years down the road.
“This is a classic case of a state government that has a huge overspending problem, and is trying to take the easy way out by saying ‘we need to raise taxes,’” Culling said.