There’s really not a lot to add to these charts. What they show is that under I-1098, Washington’s income taxes would be extremely low by national standards.
It’s true, however, that as incomes rise, 1098’s effective tax rate would climb somewhat, such that Washington would not be in the cellar of income tax payments. Yet even at very high levels of income, the tax burden would be substantially lighter than in virtually every other state.
Of course—and this is important—for almost 99 percent of Washington households, the income tax burden of I-1098 would be a big fat Goose Egg. You’d pay nothing.
You have to break $200,000 a year as a single person household ($400,000 for a couple) to pay your first nickel.
So is it really true, as the Seattle Times has said, that 1098 would mean a high rate of income taxes? I think not.
Notes: The tax rates are calculated by Sightline based on data from the Tax Foundation, here. Rates do not include the modest personal exemptions or standard deductions provided by some states. Some states’ income taxes are calculated on the basis of federal adjusted gross income, which for the purposes of this comparison I assumed to be the same as “income” in other states. I did not include state-authorized local income taxes, which are present in many states. I assumed no income tax in both Tennessee and New Hampshire, although each state does levy an income tax on interest, dividends, and some other investment-related forms of income.
Cascadian
1098 would mean a high tax rate for Frank Blethen, and that’s all that matters to the Seattle Times.
jjack
There’s at least one error in this graph. Alaska is a state. Alaska’s abbreviation is “AK”. Alaska has no state income tax. There is no AK listed on here; there is an AS (no idea where that is) but it has a higher state income tax.
Eric de Place
Good eye, JJack.The errors are fixed now. (AK somehow fell off the bottom of my original; and Arkansas is now correctly listed as AR.)
Kirk Richards
Other than the obvious reality that in every state that has imposed an income tax “on the rich” the tax has soon been extended to cover everyone, this particular tax is quite unfair to widows selling their homes, retirees selling a business they’ve worked a lifetime to build, and those with variable incomes. In addition it gives a $4800 tax cut to self-employed lawyers making $200k/year. Vote no on 1098.
Iona House
Interesting graphs, but they look cherry-picked to make the impact look small. Nobody disputes that the 0% tax on single earners at $200K is smaller than other states (it’s $0, after all).But how about a graph showing impact on earners at $10 million or a graph showing the 10% tax compared to other taxes. Many people believe that the tax will be expanded and/or the $200K limit removed. So perhaps it’s worth comparing the 10% rate to other states, not just the impact at $200K or $350K.
Eric de Place
Iona,Couple of points. 1. You say, “Nobody disputes that the 0% tax on single earners at $200K is smaller than other states.” But the Seattle Times, Crosscut, and the Wall Street Journal have all alleged that 1098 would make Washington’s tax rates among the highest in the nation. Clearly false.2. I’m not doing a $10 million comparison because virtually nobody makes that kind of money, so the comparison is irrelevant. In fact, just 1.2% of Washington households crack the $200k barrier ($400k for couples). What’s more, the top marginal rate would be just 9% (not 10%)—and then paid only on whatever income is in excess of $500k for singles, $1 million for couples.
Shane
OR does not have sales tax (in most places), and also has some of the lowest property tax in the country – at least in some counties. So, these graphs fail to paint the whole tax picture.
Tim
Here is a good picture of the TOTAL tax burden by state. Washington is pretty low…http://www.taxfoundation.org/files/sl_burden_1977-2008-200808071.swf
kjb
These graphs do not take into account the very high rate of real estate taxes we pay compared to other states. We also have a high sales tax rate. My main concern is that this is just a “foot in the door” for state income tax. Today they would only tax those making over 200K, but 10 years from now they will have worn everyone down and virtually everyone will be paying state income tax on top of very high real estate tax and high sales tax.
Tim
Here is a comparison by property taxes. http://www.taxfoundation.org/research/show/1913.htmlBy home value, we are ranked 25th in the country – 25th highest property taxes. Granted, by income we rank higher. So, in other words, Washington’s homes are valued higher than many parts of the country. Not something we usually complain about, until property tax time.I am always unconvinced of the foot in the door argument. It is used in everything from abortion, to gun restrictions, to bottle deposit laws. I haven’t yet seen a state that allowed abortion without any restrictions, guns taken away willy-nilly, or bottle deposits more than a dime or nickel. Even though the same argument was used…in fact in terms of national income tax, the rates really haven’t risen either, especially for the top…they have even fallen quite a bit.
Jim
Eric,Several Washingtonians have incomes over $10 million: Howard Schultz (Starbucks), $12,109,792; Benjamin G. Wolff (Clearwire Corp), $21,186,264; James A. Bianco (Cell Therapeutics), $12,007,030; and James McNerney Jr. (Boeing), $19,433,472 (unless he now calls Chicago home). The average income in Washington’s top 1% is $1,975,000, according to the Institute for Taxation and Economic Policy.I have some charts I think are pretty neat that I can send to you, if you like. One compares the tax structures of WA, ID, & OR on the same scale, which shows the horrible differences. The same info on separate pages in the ITEP report (www.itepnet.org) doesn’t have the same visual impact. I also plotted how I-1098 would change the structure of WA’s taxes and how our taxes would look if we had a flat income tax that provided the same revenue.
Iona House
Eric–Totally understand your point—that the tax rate is very low on those making $200K, or $350K for that matter. And you’re right, only a few people make more than that. However, the tax may be expanded (either by the courts or the legislature). So some concern about that top tax rate of 9% if it is applied more broadly.
Jim
Iona, please remember that the revenue from a 9% tax on the top 1% and 5% on the next 2% or so replaces 4% to 5% of the property tax (depending on the county) and would exempt about 80% of businesses from the B tax. Our current system of taxes averages 8.9% across the board. If a flat income tax of 9% were applied to everybody and replaced all of the other taxes we now pay, the poor people who now pay 17.3% of their income in taxes would be much better off, and people in the middle would hardly notice the difference. People who itemize on their federal tax returns now have to choose to deduct either state sales or income tax. Under I-1098, the people who pay income tax in excess of $3,339 (the limit for sales tax deduction without proof of purchases for filers in King County) could choose to deduct their entire state income tax and get 35% of it back from the IRS. For the very rich, that reduces the net tax to 5.85% Nobody needs to feel sorry for them.
Bryan
Just to clarify on Jim’s list of millionaires—Boeing CEO Jim McNerney has never lived in Washington. He joined Boeing (from 3M) after the 2001 headquarters move to Chicago, and has been paying Illinois personal income taxes ever since.
Jim
Thanks, Bryan. I thought that was probably the case. A Forbes list of CEOs had him listed in Seattle. I also see that his income this year has also taken a precipitous drop from $19.4M to $10.8M. Poor guy.
Jon Morgan
I am thrilled to open the door to a state income tax if it means eliminating the regressive sales tax. If it were up to me, I’d never put an income tax on the ballot without eliminating (not reducing) another tax. But it’s not. We’ll see if this works. It better.PS Sightline, your captcha system has never worked correctly for me. Every comment I’ve ever posted here, it rejects the characters the first time and makes me enter another set. If I’m lucky, it accepts them the 2nd time. Right now I’m trying for the 5th time to get this comment posted. This has been true on Windows and Mac machines with various browsers. Your system is overzealous.
Steve Roth
Hey any chance of getting the numbers behind the first graphic?http://www.sightline.org/daily_score/archive/2010/08/20/1098-50-states/resolveuid/ad964dc80687a5a90d66684e4e661011/image_largeI'm looking to put together a scatterplot/trendline/correlation coefficient: % Millionaires vs. EffectiveIncomeTaxRate by State. I’ve got the former but don’t have the latter…Thanks,Stevehttp://asymptosis.com