One way to determine how I-1098’s proposed income tax compares to other states is to calculate and compare the effective tax rate for an individual filer at a particular income level, as we’ve already done here. But another way is to compare I-1098’s effective tax rate for a particular percentage of income earners across all states that have an income tax.
Which brings us to…the “chart of the week”: Under I-1098, how would Washington’s effective tax rate for the top 1% of income earners compare to other states with an income tax? Since the income range for the top 1% in Washington State is over $537,000, they’ll all be paying something — but maybe not as much as you might think:
It turns out that the effective income tax rate for the top 1% of incomes would rank Washington at just 27th out of the 45 states that tax income. Now let’s examine the effective tax rate for the next wealthiest 4%. In Washington State, this group brings home between $198,000 and $537,000 a year. How would I-1098’s effective income tax rate compare for them?
The effective income tax rate for that 4% of “next wealthiest” people would be the 2nd lowest in the nation; Washington would rank 44th out of 45.
What accounts for these low percentages? One reason is that I-1098’s tax rates themselves are quite low. Another is that I-1098 exempts individual income up to $200,000 or joint income up to $400,000. According to the IRS, roughly 85% of income tax returns with an adjusted gross income over $200,000 are joint returns — so under I-1098, those households would only pay tax on their joint income over $400,000.
By way of review, I-1098 proposes to:
- Lower residential and commercial property taxes;
- Exempt 81% of Washington’s small businesses from B&O taxes (up from 43%), and reduce them for another 12%;
- Create a 5% tax on income above $200,000 (individuals) or $400,000 (joint), and 9% on income above $500K/individual or $1 million/joint;
- Net a projected $1 billion a year in new revenue;
- Dedicate the new revenue to education and health programs with regular public audits to ensure compliance; and
- Require public voter approval to change the tax rates or thresholds.
Looking for more information about Initiative 1098? Visit the Economic Opportunity Institute website.