The big debate raging about our state’s new millionaires income tax is whether it’s a “Trojan horse” for something else.
The answer is pretty simple: Yes. It is.
The caveat to this metaphor is that when the Greeks snuck their soldiers into ancient Troy inside a wooden horse, they were being super secretive about it.
The Democrats have been pretty open about their goals.
The millionaires tax is the culmination of decades of planning and work by Democrats and aligned groups to try to overturn a 1933 legal ruling that effectively outlawed progressive income taxes in this state. Democrats have held news conferences about this goal — that’s how much it’s not a secret.
In fact when income tax opponents sued in April, the prime sponsor of the millionaires tax, state Sen. Jamie Pedersen, D-Seattle, said, and I quote, “that’s great. That’s expected and welcome.”
Democrats have wanted to force this issue to the state Supreme Court for a long time. The reason is they want to try to open the gates for income taxes in Washington state.
“The reasoning of the court (in that 1933 ruling) was wrong,” one of the Democrats top attorneys, Paul Lawrence, told The Seattle Times in March, just as Democratic legislators were approving the millionaires tax. “It was based on suppositions that were not accurate. What we want the court to do is to say OK, we can throw those out and make a clean decision.”
No subterfuge there. The first hearing on whether a state income tax is unconstitutional is now scheduled for Feb. 5, in Klickitat County Superior Court. Everyone expects it will go up to the state Supreme Court eventually — which again, is the Democrats’ announced plan.
The other Trojan horse being alleged is that Democrats won't stop at taxing the rich. That is, if voters approve the millionaires tax in the Nov. 3 election, and the courts allow it, then Democrats will eventually expand the tax down the income ladder.
This one is more debatable. Currently it's a 9.9% tax on earnings north of $1 million, and opinions differ among Democrats whether that threshold might ever be dropped to, say, $500,000 or $250,000 or lower.
The long-term answer though is probably yes. Because that’s really the main point of this exercise.
A good guide on this subject is Rep. Larry Springer, D-Kirkland. He’s no backbencher; he’s been the deputy majority leader of the state House of Representatives for the past 12 years. So he's in the room, as they say. He also voted yes on the millionaires tax.
He was asked earlier this year why the public should believe that the tax would stay confined to the rich. His blunt answer: “You shouldn’t.”
“Not to be flip about it, but if past is prologue, you probably shouldn’t necessarily believe that,” he said.
There’s a ton of interest in the party, including by himself, in having a broad, fair income tax system, he said. Especially if it replaces or trims other regressive taxes that hit the lower income brackets much harder than the rich.
Taxes work best when they’re broad and low. The millionaires tax is neither; it’s a high rate on a tiny slice of taxpayers, about 25,000 of them. The tax makes the most sense as a foot in the door for a broader system. It isn’t likely to be sustained for long just as it is.
After the tax passed in March, Springer said he voted for it because it began the process of lowering some sales and business and occupation taxes, albeit less than he'd hoped. He was also asked at an Eastside forum how his party might respond if it get its way with the millionaires tax, but then is faced with a future budget deficit.
“My caucus would be sympathetic, as it’s constituted today, to either dialing down the earning threshold (for the income tax), or increasing the rate,” he said.
That doesn't mean it would happen. The public would get a say. It also remains to be seen whether future Democrats would use a broader income tax to reform those other regressive taxes, or for increased spending.
But when Sen. Pedersen was working on the millionaires tax proposal, an aide suggested it would be unwise to give out ironclad pledges that the tax will never be expanded.
“This is the most important piece because, if it works, we want to be able to extend it to get rid of property tax, etc.,” the aide wrote in a memo.
Again, this is not some cloakroom secret. It’s been a fundamental Democratic goal for as long as I can remember.
Washington has one of the most upside-down tax systems in the nation, because it hits the working poor hard and fails to capture the frothiest parts of our economy (Big Tech and the information age). An income tax, on personal earnings as well as corporate profits, has long been viewed as the answer to all of that.
So where does this leave us in this election? Caught between the perfect world and the political one.
In a perfect world, lawmakers might have proposed something more like Idaho’s tax system. Our red state neighbors have a 5.3% income tax on individual and corporate earnings along with lower sales and property taxes. A state analysis once showed that if Washington had Idaho’s tax system, we’d have twice as much revenue as we get with our own. And probably half the upheaval.
It’d be intriguing to know how the reddest state in the nation came to boast a tax system so much bluer, and stabler, than ours.
We don’t live in that perfect world, however. We don't even live in Idaho. What’s got some mojo in Washington world is “tax the rich.” So Democrats have calculated that the millionaires tax is what they can get right now. Imperfect as it is, they’ve judged it can thread the needle in both the courts of law and public opinion.
It's the subject of a repeal effort, Initiative 645, on the Nov. 3 ballot. So now the decision is up to you.
Springer is right. The tax is just on millionaires for the time being. But it only really makes sense as a beginning to changing the tax system, not the end. If there was a Trojan horse, he has split it wide open.
So what voters need to decide is: Are you OK with kick-starting that change process, as he was? Or is it better to stick with what we’ve got.
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