Volatile income tax will be hard to contain

OPPONENTS of the proposed Washington income tax — and this page is among them — say the tax will be extended to the middle class. We are sure of it. Here is why.

Revenue from the tax, says the Washington Research Council, "will be hard to forecast and extremely volatile." In bad times, it will come up short, and much more drastically than the sales tax, the property tax or the business-and-occupations tax.

Look at Oregon. On Jan. 26, voters approved a measure raising the income tax on amounts greater than $250,000 to 11 percent, the highest among the states.

The first revenue, from withholding, has now come in. It is half what the state expected.

It is down because Oregon residents do not have enough capital gains. A capital gain is profit from selling a home, a farm, a business, stock or some valuable thing.

Capital gains are how a lot of Americans get into the top tax bracket for one year only. At the top bracket, capital gains typically make up one-third of all personal income — but in some years 40 percent, and in some years 20 percent.

Capital gains are volatile. So are tax revenues from capital gains.

Another way people get into high tax brackets is to own S corporations, partnerships and limited liability companies. They pay individual income tax on business profit. And business profit is also much more volatile than wages and salaries. It can be high, or nothing.

And that is why revenue from the proposed tax would be impossible to forecast accurately, except by accident.

The state economist will forecast it anyway, because it is his job. The Legislature will budget to the forecast.

During a boom, collections will be above the forecast, and state spending will float upward on a tide of smiles. Then it will end — and legislators will say they are so sorry, they don't want to do this, they have no other choice but to impose the income tax on the middle class.

We can see it as if it were happening now.