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Income tax rate creep - Hollywood edition

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Published:2017-05-31 State
Income tax rate creep - Hollywood edition    Print Snohomish Times    
Income tax rate creep - Hollywood edition

By Jason Mercier
May 31, 2017

When the income tax salesman comes to your door promising to make you an offer you can’t refuse remember to choose wisely. If you don’t the next words you may hear out of his mouth will be “I am altering the deal. Pray I don't alter it any further.” Though always sold as a targeted tax on the rich, income tax rates inevitably grow "to infinity and beyond!" Don’t believe me? Let’s take a look at the income tax rate experience across the country.

U.S. income tax rate
1913: 1% to 7%
Today: 10% to 39.6%
Note: Top rate grew as high as 94%

California income tax rate
1935: 1% to 5%
Today: 1% to 13.3%

Oregon income tax rate
1930: 1% to 5%
Today: 5% to 9.9%
Now you may say that Washington is different and “surely you can't be serious” that type of income tax rate creep would happen here. “I am serious and don't call me Shirley.”


But just in case you need a little more proof, let’s look at the last state to be seduced by the income tax salesman. In 1991 Connecticut decided to take the income tax plunge. How is that working for them? You could say they are “mad as hell” and “not going to take this anymore!”

According to the Wall Street Journal:

“The wealthiest state in the U.S. is having trouble collecting enough money to pay its bills, and the Democratic governor doesn’t think taxing the rich is the answer anymore . . . Gov. Dannel Malloy has twice before bet that taxing the wealthy would help solve the state’s fiscal problems. But neither increase resulted in sustained revenue growth, according to his administration, which says it would be a mistake to do it a third time.”


Closer to home the Washington State Department of Commerce likes to draw a contrast with income tax states by bragging about how our state is income tax free. This strategy is working so well we're "going to need a bigger boat" to accommodate those moving to the state. Does it really matter if we give up the state's non-income tax advantage? Yes, according to former Microsoft CEO Steve Ballmer. As reported by Puget Sound Business Journal:
“A citywide income tax, Steve Ballmer said, could jeopardize Seattle’s position as a leader in the technology industry. The former CEO of Microsoft (Nasdaq: MSFT) said during a radio interview that, while Seattle has a lot going for it in terms of recruiting, retaining and creating companies, the increasing cost of living and doing business threatens the city’s economic prosperity . . . Washington’s lack of an income tax is one of the state’s main recruiting advantages over California. Enacting an income tax in Seattle, Ballmer said, would lead to fewer jobs.”

Aside from the economics of an income tax the City of Seattle appears to be responding to concerns about the legality of its proposal by saying “I am the law!”

 

As all-powerful as the Seattle City Council may be, a former Chief Justice of the State Supreme Court and former state Attorney General respectfully disagree writing in this Seattle Times op-ed:
“The Legislature cannot impose a progressive or other nonuniform tax on income, either directly or indirectly. Now, Seattle City Council wants to pass an illegal income tax, mincing no words in a May Day resolution that it intends to adopt a citywide income tax by midsummer. This proposed measure ultimately will fail . . . As we have seen time and again with income taxes at any level of government, the initial threshold — set to tax ‘the wealthy’ and attract votes — inevitably is lowered while the tax rate is increased. Before long it becomes just another tax on the middle class. Despite all these legal and practical hurdles, Seattle plans to move forward to craft an income tax ordinance in under six weeks, ‘with the goal of Full Council passage by July 10, 2017.’ The City Council should abandon its effort to rush forward with its illegal and ill-considered ordinance.”


One thing is certain, if Washington via Seattle manages to open the door to an income tax we will constantly be hearing from the taxman “I’ll be back” as rates creep up. Best to take a firm stand now and loudly proclaim “you shall not pass!”




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