Issue Team Chair: Nora Leech – nleech [at] lwvwa.org – (206) 622-8961
Issue Paper: Fair & Adequate Revenue (PDF)
Update for the 2018 Legislative Session
Hurray to all of you who responded to the three Calls for Action from our committee! Thanks to you, we were able to generate 1828 emails to 117 legislators (66 D, 51 R) asking them for help on these important issues before them.
We had Calls to Action for three bills this session:
1. The Capital Budget was passed in the first days of this session allowing the much needed capital projects to move forward for our communities. It should have passed in the last session but it was held up due to the fact it was linked to a contentious water rights bill. It passed quickly this short session and our call to action helped.
2. SB 5513 Accountability and Transparency for Tax Breaks. Good news and bad news on this bill that would have increased transparency around the 600+ tax breaks in our state.The good news is that this bill got a unanimous, positive vote in the Senate. The bad news is that it hit a snag in the House. It did not pass out of the House Rules committee to make it to the Floor.
The end result is frustrating BUT sets us up for success next session to get this bill (or possibly even a stronger version passed through both chambers next year. As we know, accountability and transparency are the foundations for a working democracy.
Bills we supported
3. Capital Gains tax: SHB 2967
This bill to create a capital gains tax and to lower property taxes was introduced and passed the House Finance committee. Unfortunately it did not make it to the House Floor for a vote in this short and busy session. We hope that this sets the stage for a big push next year on a capital gains proposal to make our revenue system more fair and adequate to meet our state’s needs.
And finally, a compromise between the House and Senate budgets was reached and sent to the governor to sign. Below is an assessment by the Washington Budget and Policy Center titled “Final budget brings momentous victories for communities, but property tax cuts will come at a cost” There was an across the board property tax cut that did pass this session.
In short: This session was a wild ride with lots of moving targets and a tight time frame. While we didn't land all the legislative victories we wanted, we moved several of our key issues further up the field, making it more likely that we'll end next session with more concrete policy wins. We've got more work to do, but we should be proud of our progress this year!
Again thank to all of you who contacted your legislators and helped move the ball forward. You are the greatest. Could not be effective without you. Be sure to get your friends to sign up for our State League Legislative newsletter and help us grow in influence on issues we care about. We will be gearing up for the next session this fall with our Action workshops. See you there.
Testimony prepared for the House Finance Committee, presented on February 16 regarding HB 2967 Capital Gains and Property Taxes:
The League supports progressive taxation based upon the ability to pay. We are in favor of this bill.
These are prosperous times and difficult times.
French Economist Thomas Piketty in his book Capital in the Twenty First Century states in his conclusion:
“The principal destabilizing force today, has to do with the fact that the private rate of return on capital (r) can be significantly higher for long periods of time than the rate of growth of income and business output (g). The inequality (r>g) implies that Wealth accumulated in the past, grows more rapidly than businesses output and wages. When these conditions exist, the entrepreneur inevitably tends to become a rentier (a person, whose income is derived from capital investments) and more and more dominant over those who own nothing but their labor. Once constituted, Capital reproduces itself faster than output increases. The past devours the future."
In plain English, today it pays way more to be an investor than to run a business. In relentlessly pursuing the highest ROI, wages and work conditions are at risk.
Piketty goes on to say that the consequences for the long-term dynamics of the wealth distribution are potentially terrifying especially given the wealth distribution is occurring on a global scale. This was also the case just before WWI. At that time in the US, there was terrifying inequality and unprotected labor.
According to Piketty: The right solution is a progressive annual tax on capital. This will make it possible to avoid an endless inegalitarian spiral while preserving competition. The difficulty is that today, it requires high level of international cooperation.
Taxes in Washington State
We can all agree that taxes should be fair.
Our economy is doing well and business is booming. However An increasingly disproportionate amount of the wealth generated comes from capital gains. And Washington State receives no taxes on capital gains.
Although we now have low unemployment, wages of working people are stagnating particularly in the service industries. At the same time, the cost of living is skyrocketing in our most populous areas putting a squeeze on disposable income. People are spending less.
It’s not fair to expect those of limited means to pay a much larger % of what little they have to pay for our roads and infrastructure which all of us benefit from. But they do.
An annual report that's done on state and local taxes found that for a family of three with an income of $25,000 in Seattle fifteen percent of that family's money would go to pay state and local taxes. That is the 4th highest tax burden in the nation. But for the same family with an income of $150,000, the situation is reversed. They would pay 5 percent of their income to state and local taxes. If they wanted to have an even smaller tax burden, they would have to move to Sioux Falls, Cheyenne, or Anchorage
What we collect per $1000 of personal income is rapidly going down. Why you might ask.
Because how much you are asked to pay has less and less to do with how well you are doing in this economy. How well you are doing is more and more reflected in capital gains than wages.
It is time to redesign our tax system to meet the needs of today’s realities and communities.
We salute HB 2967. Let’s follow 42 other states and tax capital gains. It’s only fair.
Call to Action: Capital Gains/Property Tax House Finance committee hearing.
HB 2967 Capital Gains Tax/Property Tax will have a public hearing this Friday, February 16 at 8:00am. The bill declares an intent to ask the state's citizens to reduce the state property tax levy and replace it with the capital gains excise tax. We encourage you to show up in person in Olympia, or watch the hearing on TVW.org live. You can leave comments on this bill here. This is an important issue, so be informed.
Below is a summary of bills we are watching, * indicates very active bills.
Right now, our taxes are not fair. So what is fair? If you announce to your teenage children that you would like to go the movies together. You explain that they must pay for their own movie ticket and bus fare. Your children will explain to you, it is not fair. Why? You earn lots more money and they earn very little. If you are like me, you are delighted they are coming with you and ask them to contribute towards the popcorn while offering to pay the rest. Why? A $15 ticket is an enormous amount of money to a low wage earner and it is very little to me. It is part of being a family, a community.
Today, Washington State is the most regressive (unfair) state in the nation regarding taxes. We charge people, regardless of how big or small their income, the same price to ride the light rail, cross the bridge, pay a parking ticket or buy a drink. But the low-income wage earner does not get the same level of service or tax breaks as the wealthy e.g., deductions from their federal taxes for sales taxes they pay. This unfairness has been going on for centuries. Consider the poll tax in England: the King charged a head tax of £10 per person to pay for the war. The peasant paid the same £10 as his noble, but the peasant did not get a horse to go into battle in return.
Washington state government collects sales taxes in the same manner: the noble and the peasant pay the same 10% sales tax on their pint of beer. The regressive sales taxes in our state pay for 50% of the expenditures from the general fund.
Now along comes the 2008 recession. We know there are winners and losers in a recession.
Let’s take the story of Fred as an example of the impact recessions have on individuals. A hard working person, Fred has finally earned enough money for a down payment on a modest house. An investment. He is hoping to have a nest egg on retirement. With the recession, come failing businesses and job losses. Fred loses his job at a local hardware store that goes out of business due to layoffs by a major manufacturing company. Fred must sell or give his house back to the bank because he cannot pay the escalating annual property taxes and ultimately he is unable make the monthly mortgage. Now he and his family are homeless on the streets. As a result of the recession, property prices plummet and Duncan, a man of great inherited wealth, sees an opportunity to buy property cheap. His friends tell him that when the recession ends, the property value will rise and he will most likely see tremendous capital gains. Duncan will gain lots of income (capital gains) but it will be untaxed until he sells the property. That is the money that Fred was hoping to have to support his family in retirement.
Meanwhile, Fred must continue to pay sales tax on most everything he buys: clothes, school supplies for his grandchildren, and an occasional beer. He is paying the same taxes (10% of the cost of goods) as Duncan. Fred pays the same toll to cross a bridge as Duncan, the same dollar amount on a parking ticket, but Fred pays much higher interest on debt. As the recession starts to end, prices start to climb such as rents, but not wages. Fred is sinking into failing system not in his favor.
It is a sad story. That is why a $1 to Fred is not the same value as to Duncan. Just like the price of a movie ticket is not the same to the teenager as it is to the parent. The teens know it is not fair, and so do you. That is why parents subsidize the trip to the movie theater.
Let’s not take advantage of someone victimized by the system nor unjustly reward someone with inherited wealth.
GOOD NEWS. HB 2967 just introduced in the legislature this session will make our system right side up, not upside down. It is a bill to tax capital gains and lower annual property taxes. It will help people like Fred stay in his home and help Duncan to pay his fair share of the costs of government. It will help build stronger families and a better community to live in.
Things are happening fast and furious in this short session. Bills to create transparency for tax exemptions and to create citizen input regarding awarding tax exemption are being considered in this legislative session. We are also following a bill focused on small business tax relief and a bill introduced to study property taxes with an eye on finding ways to make the regressive structure more fair.
Be sure to follow legislative committee hearings using the Washington State Legislature's webpage: http://leg.wa.gov
You can enjoy daily legislative recaps and weekly summaries by watching the Legislative Review with Dave Martinson; you can dive into key topics like water and meet key players in Olympia by watching Inside Olympia with Austin Jenkins; and determine The Impact by watching Mike McClanahan’s popular show. All of these, and many more commentary shows and videos from the floor of the House and Senate are found at www.TVW.org.
HB 6382 Property Reform Tax Task Force
SB 5847 Tax Preferences Citizen Commission
HB 2672 Small Business Tax Relief
Are your taxes fair? No, they are upside down. Speak up now.
A significant number of our citizens are paying up to 17% of their income in taxes to support the services of our local and state government. Meanwhile the very wealthy and big business are continually having their share of taxes significantly reduced. Some are paying nothing. Our vast reliance on the sales tax, (1/2 of the revenue for the state Operating budget) makes Washington state the most unfair (regressive) tax state in the US.
Today, the vast majority of our people in Washington State are suffering from stagnating wages and spiraling costs for housing, education, transportation and healthcare. They are at the same time experiencing a drop in government services such as tuition support for higher education, and a drop in government support for transportation like ferries, bridges, freeways. These decreases in government support are being passed on to the citizen in the form of fees, tolls and costs. Government support is also diminishing in its ability to protect us from threats to the environment. At the same time, as a result to the 2008 depression, Washingtonians face the escalating needs of increasing numbers of people found on the streets (which happens when rents increase by 25%; wages 5%,) and people suffering health devastation from alcohol and opiate drug abuse. Meeting these needs in our communities are are not being matched or met withsupport from the government.
Let’s be fair by sharing the costs of government services used by all, and let’s protect the valuable natural resources of our state with the goal to protect the health and welfare of all who live and work here.
Let’s make our upside down tax system right side up.
CALL TO ACTION
Find your District: http://app.leg.wa.gov/DistrictFinder/
Find who represents you in the House: http://leg.wa.gov/house/Pages/default.aspx
Find out who represents you in the Senate: http://leg.wa.gov/senate/Pages/default.aspx
Call or write your representative to tell them your story and voice your opinion.
Dear Representative / Senator--
In a time of great need, please take action to make our tax system more fair and adequate to meet the needs of our state. We must all share in the costs and benefits of living in Washington. Let’ change our upside down tax system and begin moving up the ladder known as the most regressive tax state in the US to become a state known as a state that is fair for everyone.
With Democrats in control of the Senate, House, and Governor’s seat we expect to see some movement for this short session on revenue. But given 2018 elections are soon upon us, and this is a short session, we are wondering if much will pass. The problems continue: spiraling debt, failing infrastructure, increasing poverty from stagnant wages, the shifting of costs formerly paid by the government to the public (e.g. higher education), and a general unwillingness to pay taxes.
Excerpt from the just released Governor’s 2018 budget report:
“In late June, after multiple special legislative sessions and months of stalemates, lawmakers hastily enacted the current 2017-19 budget. That budget penciled out with the use of short-sighted fixes and temporary accounting gimmicks. But legislators failed to enact any long-term reforms to equip our tax code to meet the changing needs of our communities. Until it is reformed, our inadequate tax code will continue hampering efforts to build thriving communities in every corner of Washington state. While the state economy and the capacity to fund important investments has grown enormously since the Great Recession, the tax code has made it impossible to do so.”
In the last several years, lawmakers made significant investments in public schools, but those boosts don’t represent actual increases relative to economic growth. Even with the additional investments included in the governor’s proposal, state spending remains near historic lows. As the chart below shows, in today’s dollars, the proposed levels of overall community investments in our state are actually lower than Recession-level spending.