Why Washington voters should approve Initiative 1098

From the Washington Business Magazine:

By Don Barbieri and Marilyn Watkins

Don Barbieri, Chairman of the Board, Red Lion Hotels Corporation

Marilyn Watkins, Policy Director, Economic Opportunity Institute

Initiative 1098 provides the right reform mix to create a brighter future for Washington: new investments in education and health care, tax cuts for small businesses and property owners and a modest new tax for the most fortunate.

Main Street businesses struggling to survive this recession are among I-1098’s biggest beneficiaries. The initiative raises the small business B&O tax credit tenfold. Companies owing $4,800 or less annually will pay nothing and those owing up to $9,600 will see a reduction. I-1098 also cuts the state portion of the property tax by 20 percent. That totals a $400 million savings, money families and businesses can turn around and spend.

In order to invest in higher quality education and more comprehensive health care, I-1098 adds a tax that is strictly limited to adjusted gross incomes over $200,000 for individuals and $400,000 for couples.

According to estimates by Washington’s Office of Financial Management, 118,000 businesses will be newly exempt from B&O taxes, 39,000 additional businesses will see a B&O reduction, and only 38,400 out of 3.2 million filers will pay the new income tax.

From our own family histories of upward mobility, we both know that education is the key to individual opportunity. Education is also the cornerstone of community prosperity. Businesses need a well-educated workforce to operate efficiently and stay competitive in an ever-changing marketplace.

Yet Washington ranks a dismal 47th in K-12 spending relative to state personal income, according to the Census Bureau. We rank 37th in awarding bachelor degrees and 39th in graduate degrees as a percentage of our young adult population.
Our state’s inadequately resourced education system is leaving too many kids behind—any one of whom might have been the next scientist with a breakthrough discovery, or the entrepreneur with a brilliant new concept.

I-1098 will raise $2 billion annually dedicated to education and health care. Seventy percent will be invested in lower class sizes, early learning, increased rigor and graduation rates in high schools, and greater access to higher education. Without I-1098, education reform will remain an empty promise.

Thirty percent will enhance the Basic Health Plan, long-term care, and public health. Now, soaring health costs disadvantage companies competing internationally, small businesses cannot afford coverage, and the state budget crisis has cut 40,000 working Washingtonians from the BHP. I-1098 complements federal reforms, which provide new federal money and tax credits for health coverage. Businesses and communities will benefit from expanded health insurance options and lower social costs from the high numbers of uninsured.

With I-1098, Washington will join 43 other states that already have an income tax. With marginal rates of 5 percent on a couple’s income over $400,000 and 9 percent over $1 million, the average effective rate on the top 1 percent of Washington taxpayers will be just 4 percent. That will place us 26th from the top among 44 states. Our neighboring states of Idaho and Oregon, and most of our key competitor states, including California, New Jersey, North Carolina, and Massachusetts, impose higher effective rates on their wealthiest residents.

Opponents have made much ado over the fact that I-1098’s tax base — federal AGI — includes an individual’s business income. Most states tax that same income, however, and with much less generous individual exemptions. Moreover, business expenses, investments, and losses will all be fully deductible.

Opponents have also warned that after two years the Legislature could extend the income tax to all. But in Washington, the people always have the last word. We are witnessing this right now. This November, the voters will decide on most of the new taxes the Legislature passed last session to avoid cuts to vital services and a new two-thirds requirement for future tax increases. The voters will decide on any change to the income tax as well.

We want to keep Washington a great place to live, raise a family, and run a business. That’s why we and thousands of business owners statewide support I-1098.

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