The activists who flooded Olympia yesterday were unanimous in their call for a revenue solution to the statewide budget shortfall, but as one giant placard that framed the crowd on the steps of the Capitol steps had it, they weren't lining up behind Democratic Gov. Chris Gregoire's proposed half-a-cent sales tax—which would bring in $494 million through 2013. The sign read: "Tax the 1% Not the 99%. No Sales Tax." (Editorializing for a second here on the first bit of that message, but a call to tax the 1% and not the 99% seems a little like sending your quarterback in to win the game without the rest of the team.)[pullquote]Those in the lowest fifth income bracket pay 17 percent of their income in state and local taxes. The middle quintile pays 11 percent, while the top one percent pays 3 percent.[/pullquote]
As to the second part of the message, the sales tax, already at 6.5 percent, is notoriously regressive— making poorer people pay a larger percentage of their income than richer people. (Those in the lowest fifth income bracket pay 17 percent of their income in state and local taxes. The middle quintile pays 11 percent, while the top one percent pays 3 percent.)
Liberals aren't happy about relying even more on that equation. As the Seattle Times reported:
Dorli Rainey, the 84-year-old woman who became a national icon of the Occupy movement when she was pepper-sprayed by Seattle police this month, was cheered when she told demonstrators that the state should enact an income tax, rather increase the sales tax.
"That is the most regressive thing they have come up with in a long time," Rainey said of Gregoire's proposal. "We need to start working immediately on an income tax now."
Rainey repeated her call later in the Capitol rotunda. And about 100 protesters who massed in front of Gregoire's office echoed that theme, calling the state's tax structure the most regressive in the country.
In that context, supporters of Gregoire's proposal—a temporary increase that would sunset in 2015—will be glad to know that the left-wing think tank, the Washington State Budget & Policy Center, came out in support of the idea today.
They list five reasons, including the fact that it's a quick and simple fix. However, their main sell is that the disproportionate hit can be fixed with a rebate for low-income people. Legislators have proposed a rebate before—it's known as the Working Families Tax Rebate. It would shave about $70 million a year of Gregoire's $494 million sales tax booty.
On its blog Schmudget (that's Yiddish for budget), the Budget and Policy Center writes:
Costs for lower-and moderate-income families can be offset: Pairing a sales tax increase with funding for the Working Families Tax Rebate (WFTR) would significantly reduce costs for lower-income working families with children. The WFTR is a Washington state version of the federal Earned Income Tax Credit (EITC) that was enacted in 2008, but never funded. Set at 10 percent of the EITC, the Washington state rebate would more than fully offset a one-penny sales tax increase among the poorest families in Washington. It's also important to note that up to one third of a sales tax increase would be offset among higher-income households due to larger federal income tax deductions for Washington state taxes.