A Note on Necessary Tax Reform

The Washington Legislature is now in session and looking for money. Just to meet the funding requirement for basic education, it will have to come up with billions of dollars. The answer to this fiscal bind lies not in another round of spending cuts and tax hikes but in a complete overhaul of Washingtons increasingly dysfunctional tax system.

In 1932, Washington citizens overwhelmingly passed an initiative to enact a graduated income tax, but it was ruled unconstitutional by the Washington Supreme Court in a narrow 5-4 decision. Eight decades later, Washington is one of only seven states without an income tax.

Throughout its existence, the Washington tax system has been problematic. Its heavy reliance on retail sales taxes, whose inadequate tax base fails to keep up with the growth of the economy, has made it necessary to raise the state government sales tax rate from 2.0 percent to 6.5 percent. This, in turn, has greatly increased the regressivity of the Washington tax system, which is broadly recognized as the most unfair in the nation.

Due to the volatility of the sales tax base, the Great Recession caused a 9.6 percent decline in state government tax revenue in FY 2009 despite no change in personal income. By FY 2011, Washington ranked 38th among the states in state and local tax collections and 46th in public elementary and secondary school spending per $1,000 of personal income, according to the U.S. Census Bureau.

Based on an analysis of the fairness, adequacy, stability, transparency and economic vitality of state and local tax systems in the United States, Washington has the worst tax system in the nation. The evidence further indicates that the most logical resolution to its various deficiencies is instituting an income tax. Even a single-rate personal income tax would be vastly superior to our current tax system.

Richard S. Conway Jr.
“Washington State and Local Tax System: Dysfunction and Reform“