Fairer Taxes for Washington: Taxing high incomes to reduce regressive taxes and improve public services

Taxing high incomes to reduce regressive taxes and improve public services

Report | April 21, 2008 | By Marilyn Watkins

Executive Summary

Washington State’s seventy year-old tax structure is built on an ever-shrinking  base, and taxes fall most heavily on those least able to afford them. This discussion brief outlines options for a limited tax on the highest income households, coupled with a reduction in sales or property tax. The result would be a fairer tax system that keeps pace with economic growth and provides the  revenues for high-priority public investments in education and infrastructure  that are necessary for shared prosperity.

Key Findings

Our state’s existing tax system is outdated and unfair.

  • Washington’s tax system falls most heavily on low- and moderate-income residents and smaller businesses, while the state’s wealthiest residents pay relatively little for public services.
  • By failing to capture revenue from a changing economy, we are starving our state of needed investments in education, transportation, and health.

A tax on high incomes will raise revenue that grows with our economy.

  • A tax on incomes over $200,000 would fall on the top 4% of households. It would raise $2 billion per biennium at 3%, and $3.4 billion at 5%.
  • A “millionaires” tax would be paid by 0.1% of households. It would raise $780 million per biennium at 3%, and $1.3 billion at 5%.
  • A tax on interest, dividend, and capital gains income with middle class and senior exclusions would raise up to $1.9 billion.

New progressive taxes paired with reductions in regressive taxes will reduce inequities in our state’s tax structure.

  • Pairing new progressive taxes with reductions in regressive taxes could net $400-$760 million each biennium.
  • Lowering the state portion of the sales tax from 6.5% to 6% would cost $1.3 billion a biennium and save the typical Washington family $60 per year.
  • Cutting the state portion of the property tax in half would cost $1.5 billion a biennium and save the average homeowner $330 annually.

Full Report >

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