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.
Supporters dismiss these claims and are touting the initiative as a net tax cut, saying that income-tax revenue would be used to reduce other taxes, like the state property tax — even though Gates Sr. has said this was “not a huge factor” in his support for the measure.
Another major selling point is the claim that any additional tax revenue would be diverted to education and health-care programs. Opponents point out, as anyone familiar with budgetary loopholes inherent in state “education” lotteries should realize, that this is a meaningless promise, since money can be shifted from one part of the budget to another at will.
Brett Davis, a policy analyst at the Evergreen Freedom Foundation, said that, given the anti-government, anti-spending mood of the national electorate, he is surprised proponents of the measure opted to run it on the ballot this year.
The polls are very close: A recent Elway survey found 44 percent in favor and 42 percent opposed. Supporters of both Sen. Patty Murray and her Republican opponent, Dino Rossi, are hoping I-1098 will drive turnout, to their advantage. Republicans are optimistic that tea-party sentiment against the income tax will attract voters to the polls for Rossi. “Initiatives tend to [bring] the pro-market people out,” a GOP strategist said. “The more people turn out, the better for Dino.” Democrats believe the same about their base voters: If Murray herself doesn’t draw them to the polls, the initiative’s soak-the-rich cause will.
Traditionally, not having a state income tax has been a source of pride among Washington taxpayers. That leads some observers to predict the paradoxical Election Day outcome of Washingtonians voting to reelect Murray — who says she doesn’t want the Bush tax cuts extended for people making over $200,000 a year — while voting down an initiative that would effectively do the same thing.
“Actually voting to raise taxes is a lot different than voting for a liberal legislator,” Culling said. “People don’t like to pay taxes whether they are liberal or conservative, I don’t care what they say.”
— Andrew Stiles writes for Battle ’10, NRO’s election blog.