An Odd Time To Bring Up Income Taxes

Although, for our friends at the Economic Opportunity Institute, there may be no bad times to talk about taxing the rich. Marilyn Watkins, acting EOI executive director, argues the case in this Everett Herald column that did double-duty as a PI op-ed today. After acknowledging the state's coming budget shortfall, she offers a modest solution to the problem.

Here are small steps next year's Legislature could take that would make a big difference. It could institute a new "high incomes tax" that exempts the first $200,000 of family income, starts at 3 percent and jumps to 5 percent on incomes over $1 million. Couple that with a reduction in the property tax, and most families would see their tax bills decline. Only four percent would pay the new tax, and it would be those whose incomes grew fastest and for whom federal taxes fell the most in the past decade.

Revenue from the new tax could be dedicated to our highest priorities: education and health care.

Well, our highest priorities - education and health care - also happen to be where most of the state budget currently is spent. So she wants a new dedicated tax to go to traditional general fund programs. Not much targeting there.

The larger problem, which never seems to bother EOI, is that the "high incomes" tax introduces considerable volatililty to our tax system, particularly when you cut the remarkably stable, if unpopular property tax. Even the Tax Structure Study Committee chaired by Bill Gates, Sr., not a group hostile to income taxes, concluded that the

Graduated personal income tax is more volatile than sales tax
or property tax.  It is also more volatile than a flat rate personal income tax. 

There's  history of such shenanigans with EOI, a group that earlier championed the latte tax in Seattle (rejected by the voters), paid family leave (adopted and unfunded by the Legislature), the family and business punishing estate tax, and touted a cigarette tax hike to fund health care (declining revenue base mismatched with rising health care costs).

The common element unifying these schemes: promises of a pain-free way to substantially increase public spending. The proposed revenue hikes never cover the costs of expanded entitlements.

Paul Guppy, with the Washington Policy Center, writes about the income tax scheme here, pointing out that the federal income tax originally appled to only the richest 2 percent of the population. We know how that worked out.

And you just want to be careful with tax hikes proposed by folks who treat lattes as luxury items indulged in by the rich.