Let’s be clear about how much good tax revenue could do for people right here and now. State and local governments in Washington can use public funds to help households earning up to 80 percent of area median income, or “AMI.” By way of example, in Seattle that’s an individual earning up to $61,800 annually or $88,250 for a family of four.
That could go a long way toward helping folks get through this crisis, get back on their feet faster, and get the whole economy humming again as quickly as possible.
That implies not only inability to help, but also cuts that may put more people out of work and delay recovery.
Here’s the good news: there is so much income and wealth in our state that more than $3B a year and as much as $10B over three, could be raised exclusively by taxing those of us doing very well indeed despite the crisis.
Governor Inslee previously proposed a high-threshold capital gains tax that could raise $975M a year, solely from very rich (or extremely lucky) people. On balance, this crisis is benefiting ticker symbols “MSFT” and “AMZN.” So let’s make tech wealth that’s increasing as a result of it play a part in helping others through it. (And if you’re not rich, don’t worry – it excludes retirement accounts. And it was estimated to affect only 42,000 of the wealthiest or luckiest investors in the state.)
Senate bill 6581 would raise the estate tax on those bigger than $6.5M (h/t Economic Opportunity Institute) to raise $30M annually.
There’s our first billion.
Let’s assume Washington tracks the national average for how much wealth the top five percent of households had in 2016, according to the Federal Reserve. It’s a good bet we exceed the average, but even if we don’t, a one quarter of one percent wealth tax would raise $1B–after exempting the first $2M of wealth.
So if you own a million-dollar house and have a million in your investment account, you pay nothing.
If you have that and also another $100,000 in your bank account, you’d pay $250 (that’s two-and-a-half Benjamins.) That’s because entry into the 95th percentile of wealth in the U.S. starts at $2.4M and rises steeply from there.
There’s our second billion.
An income tax has been a political football for nearly 100 years. That’s in part because the state constitution requires that property be taxed at a uniform rate. And in 1933, the state supreme court decided that “income” was “property.”
This means that only a flat rate income tax would be constitutional. A progressive tax that kicks in only on income over a certain amount wouldn’t pass muster.
But that are two ways forward to make an effectively progressive income tax our third billion.
University of Washington law professor Hugh Spitzer argues persuasively that the 1933 decision was probably wrongly decided then and glaringly obviously wrong now. The state legislature should pass a progressive income tax that gives the court a chance to agree.
If that were to happen, a truly progressive tax could easily raise $1B or more exclusively from high income households To put a fine point on it: well more than a quarter million households in Washington state earn over $200,000 annually. About four thousand dollars from each of us would get us there.
But even within current constraints, the legislature could pass an excise tax on high compensation. This would fall on companies, but there’s no inherent reason companies couldn’t pass it on to high-wage workers. (In fact, if they really can’t, then those high wage workers would have already been likely to demand raises. And passing this tax right away would provide big companies a clear incentive to get onboard with supporting a truly progressive income tax to replace it.)
According to the Economic Opportunity Institute, Senate Bill 6017 would raise about about $325 million a year through an excise tax on companies who pay some employees more than $1M a year. Another bill, House Bill 2907, could raise $650M as a tax on employer compensation between $137,7000 and $1M.
So here we have it: more than $3B in urgently needed revenue that can be invested in helping people through the crisis and accelerating recovery for all. All the wealth and income being taxed isn’t solely attributable to tech–but tech guarantees that despite the current downturn, there’s still a lot of it.
A quick recap on how to #TaxUsNow to fill the statewide budget gap and more:
- Big money capital gains: $975M
- Massive estates: $30M
- Multimillionaire wealth: $1.1B
- Progressive income or excise tax on high compensation: $975M – $1.1B+
Let’s go for it: $10B over three years to invest in making recovery faster, fairer, and more just for all.