For the meeting with Jim McIntire, June 14th, 2006
Statistical Continuous Curve Progressive Income TaxEdit
Statistical modeling can be used to enable the calculation of an individual's taxes using three numbers. The Average Income from the previous year, the Standard Deviation from the previous year, and the amount of income from all sources in the current year. These numbers are used to calculate 'z', which is a way of describing how far above or below the average the income number is. The Legislature would set a tax rate, a 'z adjustment' and limits. The tax rate would be what the average person pays. The adjustment would be used to increase or decrease the tax rate. Limits would be set for a minimum income and maximum tax rate. If your income is at -1z, it means you are one Standard Deviation below the average. This would mean your tax rate is 1z lower than the rate that the average worker pays.
Let's say we start with a tax rate of 5% and an adjustment of 1%. For number examples, let's say the average is $45,000 and z is 5,000. -1z would be an income of $40,000, and the tax rate would be 5%-1%, or 4%. You would pay $40,000 * 4% or $1,600. Let's say your income is $25,000. That's -4z, and your tax rate drops to 1%. Now let's say your income is $75,000. That's +6z, and the tax rate goes to 11%, or $8,250. This is where the limits come in. If you're making 15,870, which is the wage of someone working full time at a salary equal to Washington State's minimum wage, you're at -5.826z. With the original tax rate at 5%, it means that people making $20,000 or less would pay no income taxes at all, and the individual making minimum wage would actually get a refund back.
Now let's look at the higher end. If someone makes 300,000 per year, this would be +51z, making their tax rate 56% or $168,000. Considering that the top Federal Tax rate is currently 35%, this probably wouldn't go over very well, but I'm a firm believer in high taxes on high income and wealth to prevent the over accumulation of wealth. And I don't think that we need taxes that high on a state level until we really get the idea sold that a three (or four) source tax structure is much more stable than just Sales and Property that we have now. The highest state income tax rate is 9.5% in Vermont, which with these numbers would be anyone earning $67,500 would pay this rate, or $6,412.50. Not too bad considering that's deductible from Federal Income Taxes.
These numbers are not real. We would need to collect the data from the IRS on income earned by our citizens, and do the calculations to get real numbers. But it's a starting point in the discussion.
I have several concerns re taxing policy:
- Can a state graduated income tax replace all (or a substantial part of) the state sales tax?
- Can we tax intangible income of individuals and corporations?
- Can we abolish the B & O tax?
- Can we get smarter about getting fair revenues from corporations?
Note: In a recent article in State Tax Notes, Richard D. Pomp, former director of the New York State Legislative Commission on Modernization and Simplification of the Tax Law, attributes the decline in state corporate tax collections being experienced across the United States in part to “corporate chiefs… paying more attention to state tax matters” and to corporations “using increasingly aggressive and sophisticated tax planning strategies.”
I'll be out of town, otherwise I'd enjoy speaking with him about this issue. I was seriously miffed when he spearheaded efforts to give Boeing a huge tax break a few years back. And when he speareheaded the drive to keep the Sonics at all costs.
We own a middle-income company: not small enough to qualify for small business tax breaks -- and not large enough to wield any significant political power and so we pay and pay and pay. We employ 44 people in King County and pay B&O taxes on approx $7M in annual revenue. If we manage to eek out a profit (not easy in today's "big box" climate), we pay Federal tax on that. As a retailer, we are also a fiduciary for the State in collecting sales tax revenue for them. I'm also a homeowner so it seems like every time I turn around, I'm paying. I have no problem paying my fair share, I just don't like to be the only guy at the table picking up the tab! Feel free to use any of these examples in your discussion if it seems appropriate. Kim
I know from the King County Assessor that if all the exemptions were ended, we'd triple the tax income. That is, exemptions outweigh tax payments 2:1. Therefore, to increase tax income without increasing taxes, we should sunset all the 500 exemptions on a 10-year schedule and examine each one every 10 years.
A citizens' committee with representatives from the legislature should audit tax exemptions, the way the Sentencing Commission and many others work. They should give themselves a start-up year to develop criteria for exemptions, and a point system for weighting the criteria, with public input. If job creation was promised, exemptions should produce auditable medium-to-long-term jobs, not seasonal jobs. Failure to produce promised jobs should put the tax exemption on an immediate review schedule to re-evaluate the points awarded.
All the 500 exemptions should be ranked according to the "common good." The legislature can then change the cutoff in the rank order according to budget needs and refuse to consider new exemptions which are "good" but not good enough to make the current cutoff, according to the criteria established and points awarded by the citizens' committee. We could allow each caucus to nominate half the exemptions to be audited in each of the first five years.
This obviously gets the legislature out of the business of awarding tax breaks for whatever special interests have the best friends and best lobbyists in the legislature.
With incomes polarizing so that we are becoming a two-tier society, how will the bottom half be affected by any changes in the tax system? Our current tax structure is regressive and the change should result in relief for those with lower incomes, but that will depend upon the way the legislation is crafted and how it is revised and amended.
Also, can we make it green by giving a break to family-owned wind farms in Eastern Washington?
My feeling for many years, maybe it's even decades now, is that until Washington State adopts an income tax our tax system will never be fair. Making adjustments in our sales, property, and businesses taxes without implementing an income tax is really just moving the deck chairs around on the Titantic and hoping that it won't hit the iceberg (boy, I need a newer metaphor).
I know that income tax is the third rail of Washington politics, but I am an activist who will support any Washington politician who is brave enough to call for one. I will work for a campaign to educate the public (again) about why an income tax will be better for middle and low income residents.