An Extreme Tax Makeover for Washington?

An excellent op-ed in today's Herald-Bulletin gives options for reforming Washington's tax system. The main recommendation, from author Marilyn Watkins, is, in some ways, quite ambitious:

How about a new high income tax that exempts the first $200,000 of family income, then begins at 3 percent and jumps to 5 percent on incomes over $1 million? It could be coupled with a reduction in either the sales or property tax. That way, most families would see their total tax bill decline. Only four out of 100 households would pay the new tax, and it would be those that have seen their incomes grow fastest and their federal taxes fall the most in the past decade.

Watkins herself describes this as not very ambitious at all, and she's right in the sense that much broader reforms are needed to bring Washington's tax system into the 21st century. Sadly, these ideas are politically very ambitious, and they shouldn't be.

November Initiatives Could Ding State Budget

The ink is not yet dry on the ballot initiatives that will face Washington voters this fall. For tax and budget watchers, that means the jury's still out on whether two budget and tax related measures will qualify for the ballot. But the bad news is that either of them would cost a bundle.

One proposal, authored by anti-taxer Tim Eyman, would not directly cut taxes, but would earmark some existing revenues:

Eyman's measure, in part, would direct 15 percent of all taxes collected on the sale of new and used vehicles into an account that would support traffic programs to synchronize traffic lights, open car pool lanes and pay for more highway crews to clear accidents.

This, of course, would reduce the pot of revenue available to fund all other priorities.

So if Eyman wants to pay for new spending priorities without a tax hike, is this a pain-free move? Eyman thinks so:

Eyman said he's comfortable paying for the measure by cutting whatever the Legislature decides are its lowest priorities.

But given recent forecasts that the state faces a six-year budget deficit of $2.7 billion, it's worth asking whether the legislature's "lowest priorities" will already have gone under the knife by the time Eyman's initiative takes effect.

Earmarking revenues for specific spending needs, as Eyman's initiative would do, is generally a bad idea because it reduces the flexibility of lawmakers to allocate monies as they see fit. In the context of a looming budget shortfall, it's even worse-- because it allows voters to address spending shortfalls in specific areas without having to identify what "low priority" spending areas should get the shaft.

If more revenue for transportation is needed, it should be up to the legislature to find it. It may well be that the best way to fund transportation is to take money away from other spending areas rather than by enacting a tax hike-- but elected officials are paid to make exactly this sort of hard decision. They should do so instead of shunting off these decisions to voters.