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30 July, 2008

Is there something wrong with Washington's tax system?

Location: washington state
Mood: perplexed

If you live here, you know that Washington State has a sales tax that is over 9%, while having no income tax whatsoever. Recently, I started thinking "That seems really unfair". It seems like the model of having only a sales tax could be categorized (in taxation terminology) as "regressive" - meaning, the less you earn, the higher the percentage of your income that is taxed. How do I come up with that? Well, if you are barely making ends meet, then chances are you are probably spending everything you earn each month. In that case, you are being taxed on everything you earn (I will return to the flaw in this assertion in a moment). On the other hand, if you are well to do, then you probably only need to spend a small percentage of your total earnings, in which case you are taxed on only a small percentage of your earnings. In theory, this sounds like it would be true.

I did some Google "research" and found a blog that referenced a report that supported my "theory". In this article, they mentioned that Washington has the highest sales tax in the country. They present a lot of data that is completely in line with my arguments. They stated that the wealthiest people in Washington end up paying only about 3% of their income in state and local taxes, compared to the poorest people who pay upwards of 18% of their income. The report has some very nice tables and figures that add up to the conclusion that "Washington’s Tax System is the Most Regressive in the Nation".

Can we believe the report? It was published by the Institute on Taxation and Economic Policy (ITEP). Do we believe them to be objective, or are they a liberal slanted group with an agenda? There is some very interesting reading on news related to Washington State tax policies on that site. I decided to click through and look at the reports for 15 or so other states, including places like New York, Massachusetts, California, and a number of small states. And it appears that the situation in Washington is a difference of degree not of kind. Almost every report said that the respective state and local taxes hit the poor and middle income more (or far more) than the wealthy. Washington just happens to be the most regressive. For a broad look at the country as a whole, look at this national report. These reports show that even the "least regressive" states (Delaware, Vermont, California, Montana) only achieve "flat-tax" status. No state is progressive in combined state and local taxing.

The other day, I was spouting forth my anger on the topic of Washington state taxes, and a friend of mine (who I am fairly certain is quite liberal) said something to the effect of "I am standing here listening to your bullshit about taxes". At first I thought he was joking, but we discussed, and he presented an alternative viewpoint that was multi-pronged:
  1. "Why should the rich people get penalized for making more money?"
  2. "A sales tax is a good thing, because it penalizes people for buying a bunch of shit that they don't need"
  3. "Essentials like food don't get taxed anyway"
I apologize for paraphrasing, and if I have somehow lost the crux of the point, then I will be happy to post corrections.

I thought about this some, and I will agree that it is absolutely true - partly. If people lived within their means, then poorer people, who a) don't own property, and b) can't afford much other than food, would not be paying a disproportionate percentage of their income to taxes. And rich people who buy a lot of stuff would be paying a lot of money into taxes (in fact, they do - in dollar amount - just not in percentage of their income). The place that the argument falls apart is that poor people do not buy only essentials. They still want to have the "American Dream" and they're buying cars and televisions and all sorts of shit that they can't afford - on credit. My friend had this part of the issue covered with the "penalty for buying shit you don't need" argument. So, in practice, he is right. Or is he? I will resist the urge to go on the tangent that our media and corporations are brainwashing us into buying stuff so that we feel "complete".

So I have now gone from being 100% sure that he was wrong, to being uncertain. There are definitely some things that I believe, which fall under the category of "socialistic" or "progressive" views (depending on your leanings). I believe that the rich should pay a higher percentage of their income than the presently do. I do not call that a "penalty" for being rich. I call it a contribution to the betterment of society from those most able to give. Forced charity... socialism, yes. It should not be so large that it negates the incentive to strive for wealth. But it should be something that affords improvements to our cities and states that would not be possible without it. There are also a number of unfair issues in the realm of property taxes in Washington, and some of the apparent unfairness may be tied to the unhealthy (artificial) inflation of property value that has happened in the past 10 years. And of course, everything that Tim Eyman has touched falls into the category of "regressive measures".

But what is the right thing to do? I don't know. I just know that it would be nice if the politicians and voters in this state could finally agree on something that improves infrastructure, rather than pandering to sporting teams or business interests.

4 comments:

  1. I don't own a home, so cannot comment about the tax situation as a whole. I do know my friends bitch and moan about their property taxes and I hear it as bitching and moaning. I do know that if my income were taxed by the state? I'd likely pitch a fit the likes of which no one has ever seen. I'm used to paying a sales tax. It's familiar, it's second nature and I never think a thing about it. Change is bad, Bob! =)

    Having said that, I was having a conversation yesterday about the new tax beginning January 1 that will tax 10 per grocery bag used. This is *supposed* to encourage people to be more green, despite the fact that paper and plastic bags alike are taxed the 10 cents. Here is my bitch and it's the same bitch I have about the insane taxes on cigarettes - they have already allocated how that tax money will be spent and now, they need it. They don't actually WANT people to stop using the plastic (or paper) bags at the grocery store any more than they want smokers to quit smoking. Those taxes pay for shit and they need them almost as bad as I need my next cigarette.

    If they want to tax, go ahead and tax. Some people will complain, but ultimately, taxes pay for shit and people will have to live with it. But, the way the state and city tax choices under the guise of helping you be greener or healthier gives me the smallest window into those awful conservative think tanks who believe all taxes are evil all the time.

    Oh, and I'll do some research, but I have a feeling that website you read was actually a conservative one and not a liberal one.

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  2. That website was liberal. Your instincts were correct. Mine were wrong. I stand shamed in the corner. =)

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  3. I just put this new bumper sticker on my car, partly in light of what seems like this avalanche of mythical proportion of information I've been getting lately on this unbelievably unfair capitalist system you call "democracy". The sticker reads: Proud to be a Pinko! :)
    Maybe I'm too young, but god damn - does Socialism REALLY sound so bad?? Not to my ears! A few more lectures on NPR and articles in the NYT and our "liberal media" will have convinced me to move to a freaking Kibbutz. Anyone care join me?

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  4. Inman Wheelright01 August, 2008 16:52

    Pretty much every tax system we have here is whacked out in some way or another. We have a democratic republic and not a true democracy here in the USA, and so we have the electoral college, and we have the senate with non-proportional representation, and most importantly we allow the existence of lobbying as an industry, since we are, after all, a capitalist society.

    The wealthy have the greatest ability to contribute towards funding the infrastructure, public education, even defense funding, but those that are wealthy also tend to think of themselves as superior and therefore exempt. In a word, they are also characterized by greed.

    So it stands to reason that they spend a small amount to lobby those shaping public policy to reap a large benefit in the form of tax loopholes, regressive tax structures, etc. They are, after all, allowed to petition the legislators and the executive.

    Each conservative may give you a slightly different reason (btw imho discussion of regressive taxation means liberal all the time -- conservatives don't even want to dignify the issue by breathing its odious name), but they are united by a hatred of taxation. Taxes are paid by suckers.

    So what I think all of these people are missing is that they, with their tremendous wealth, are those that stand to lose the most if there is social unrest, redistribution of wealth, land reform, whatever Robin Hood thang you conjure, and so these people are short-sighted and none of us should be surprised if this short-sightedness comes back to bite them in their karmic asses.

    Not all wealthy people deserve this label or possible fate, only the anti-tax conservatives that fervently oppose any tax reform approaching the path to fairness, as I in my supreme wisdom define it.

    And that's the rub. It's how you define fairness. I just don't get people in the middle of the country (bible belt, red states, whatever). Socialism is problematic in that those in government become the elite class instead of the greedy who will screw the little guy, the environment, or anything else that is screwable for the sake of making a buck.

    P.S. living in NH with a very low tax rate is sort of nice. Where did that rank on your list of states with low tax burdens?

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