Washington is one of only seven states to have no state income tax, the other six states being Alaska, Texas, Florida, Nevada, South Dakota, and Wyoming.
Recently newspapers, blogs, and the airwaves have been filled with pleas
for and against I-1098. A google search will turn up the flavor of
some of these ads and articles.
The new tax imposed by I-1098 applies only to yearly incomes above $200,000 for individuals and $400,000 for couples. It will lower the state proportion of property taxes by 20% and will lower the Business & Occupation Tax on small businesses. The B&O Tax is based on revenues, not profits, and so hits small businesses particularly hard. See here and here for more details on the tax.
The Institute on Taxation & Economic Policy has called Washington's tax system the most regressive in the nation. About 60% of state revenues come from sales tax, which hits the poor the hardest. As reported here, "The institute estimates that the poorest 20 percent in Washington pays 17.3 percent of their income in state taxes while the top 1 percent pays 2.9 percent."
Piggy Bank by Don Smith
Due to the recession, state tax revenues have been severely impacted, and over the past few years Washington, like most US states, has run big deficits. It has had to slash spending on social services and eduction. Washington ranks 47th in K-12 spending, according to the Census Bureau.
When many Americans think of Washington State, they imagine a progressive green utopia, with ample funding from Boeing and Redmond-based Microsoft providing a high standard of living. But Washington's unemployment rate is nearly 9%. Corporations and the rich have a powerful hold on state government. Boeing has received numerous tax concessions from the state legislature over the years and has repeatedly threatened to move its operations out-of-state if it is not given favorable tax treatment. The conservative BIAW (Building Industry Association of Washington) is a powerful conservative lobby that influences Republicans and many middle-of-the-road Democrats. See this article and this report.
Moreover, the state constitution has built-in conservative tenets. It has language requiring that all taxes be "flat" (non-progressive) on property. And it prohibits gas-tax money from being spent on anything but road construction and maintenance.
Washington State voters have rejected income tax proposals seven times since 1935.
The constitutionality of I-1098 will likely be challenged in court. I-1098's survival depends on whether income is considered property and on whether $200,000/$400,000 exemption violates the constitution. Most observers expect I-1098 to survive constitutional challenge.
But this year, there is hope that the middle class voters will wise up and stop voting against their own interest. The state has had to slash government services to balance the budget. Further cuts are expected next year, due to the continued recession.
Bill Gates, Sr. (the father of Microsoft's founder) is a strong supporter of I-1098. He appears in this funny video ad for I-1098. Recently, Mr. Gates has announced that his son (the founder of Microsoft) also supports I-1098.
Voters in neighboring Oregon passed a state income tax increase in 2009.
On the other hand, Microsoft CEO Steve Balmer and Amazon CEO Jeff Bezos recently came out against I-1098; each man donated $100,000 to the anti-I-1098 campaign.
The Seattle Times' editorial board has repeatedly editorailized against I-1098. The Seattle Times is the only surviving major daily newspaper in the Seattle area, due to the collapse/virtualization of its long-time competitor the Seattle Post-Intelligencer. The Seattle Times regularly endorses fiscally conservative candidates. (In its defense, the newspaper is moderate or liberal on many social, environmental, and war-related issues.)