[4/27/18] Recent Study Takes Deeper Look At The State’s Tax System In 15 Washington Cities

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Who really pays for the services Washington state and its cities provide? A new analysis from the Economic Opportunity Institute investigates the state’s tax system in 15 cities. It found low- and middle-income households are paying an oversized share of their earnings, taking the bulk of the tax burden compared with wealthier residents.

Previous studies have found the Evergreen State has one of the most regressive tax systems in the country. Report author Matthew Caruchet [CAIR-uh-shay] said increasing income inequality is compounding the problem, pushing this regressive tax structure to a breaking point. He said the burden isn’t evenly distributed.

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“…doesn’t mean that everyone else is.”

The report says Seattle has the most regressive tax structure of any Washington city. That puts the growing city in a unique position, given that it needs more revenue to invest in its increasing need for public services. Supporters of lower tax rates on wealthy residents say it promotes job creation, although the report found no correlation between job growth and cities’ tax structures.

In Seattle, the effective tax rate for a household making 25-thousand dollars is 17 percent. For a 250-thousand-dollar household, it’s about four-and-a-half percent. Bellevue took the number two slot for most regressive after Seattle. Renton ranks third, giving King County a clean sweep for the top-three regressive cities.

The three least-regressive cities are all in Eastern Washington. Spokane tops the list, followed by Yakima and Wenatchee, in that order. While Spokane still taxes the poor at a higher rate than the rich, the gap between those two rates is 7 percentage points, smallest among the 15 cities. In Spokane, a 25-thousand-dollar household pays about 10-and-a-half percent and a 250-thousand-dollar household pays about three-and-a-half percent.

Caruchet said cities have suffered partially because of their reliance on the same taxation methods that the state employs, which is usually increasing property, sales and car taxes.

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“…of the middle class and working class at higher rates.”

Seattle has tried to go its own way with a more progressive structure. Last summer, the city council unanimously approved a 2-point-25 percent tax on individuals making more than 250-thousand dollars and couples with a combined income of 500-thousand. A King County Superior Court Judge ruled against the ordinance in November, saying it violates a 1930s state Supreme Court decision banning progressive income taxes. The city has appealed the ruling.

Ahead of Tax Day one week ago, Seattleites held a rally April 14 calling for a fairer tax system in the state.

Tim Welch, public affairs director at the Washington Federation of State Employees, said the burden of the state’s tax system disproportionately falls onto working families and wealthy Washingtonians aren’t paying their fair share.

Welch said everyone uses public services such as roads and schools, and so it’s only fair to make the tax structure more equal. He said the lack of support for public services was underscored recently by the McCleary decision, in which the state Supreme Court ruled Washington was unconstitutionally underfunding schools.

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“…roll up our sleeves and fix that upside-down tax system.”

Welch said he thinks there are a number of ways to fix the tax system, including closing the dozens of tax loopholes for businesses. He said the state also could use a so-called “working families tax credit,” which would mirror the federal earned income tax credit that gives tax breaks to low- and middle-income people.

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“…other public assistance that put a drain on the services.”

Groups at the march also wanted to dispel the myth that Washingtonians are paying higher taxes. Welch said state revenue collections have decreased by 30 percent as a share of the economy over the past three decades. He said the current tax structure is outdated and isn’t keeping up with the state’s high-tech economy.