Senate proposal: Add income tax on wealthy to cut sales tax for everyone

OLYMPIA — Senate Majority Leader Lisa Brown wants to send voters an income-tax proposal that would hit the wealthy and give everyone a sales-tax break.

The fall ballot measure would put an income tax of 4.5 percent on income over $200,000 for individuals, $300,000 for heads of households, and $400,000 for married couples. It would not apply to corporations.

The pot sweetener: Voters would get to bring the state sales tax down by a penny.

A tax on high earners would "bring more fairness and stability to our sales-tax-dependent tax structure," Brown said on her blog Thursday.

This is the second year in a row that Brown, D-Spokane, has broached the idea of an income tax. But this time there's legislation, Senate Bill 6250, sponsored by Sen. Rosa Franklin, D-Tacoma. A hearing was held Thursday, though the measure's future is uncertain.

It's not clear when the bill might get a floor vote, or if there's even enough support to get the bill passed out of the Senate. The Legislature is supposed to wrap up business on March 11 and has yet to figure out how it will close a projected $2.7 billion budget shortfall.

"There's a lot of interest but it's probably too late in the session," said Sen. Ed Murray, the Senate Democratic caucus chair, adding "but nothing is over until it's over."

Sen. Rodney Tom, D-Bellevue, a key budget negotiator, said he doubts there are enough Democratic votes to get the bill passed. And if there were, they'd be doing Republicans a favor in November, he said.

"The citizens of Washington state have been pretty clear that they don't want an income tax," he said.

Republicans reject asking voters for an income tax. "I think it's the wrong answer," said Sen. Joe Zarelli, the ranking Republican on the Senate Ways and Means Committee. "The right answer is getting spending in line with revenue."

Over in the House, Ways and Means Chairwoman Kelli Linville, D-Bellingham, felt it was too late in the session to bring up an income tax. "We have eight days left. If I thought it was a viable option, I might support it. I don't think it is," she said.

The income-tax measure is not meant to help the Legislature fill the current hole in the budget.

The Legislature still needs to increase taxes now, Brown said, to help balance the budget.

The Senate recently proposed raising $918 million with a tax package that includes a temporary three-tenths of a cent increase in the state sales tax. That increase taking the current 6.5 percent state sales tax to 6.8 percent would expire in 2013.

Conventional wisdom says an income tax targeting the wealthy wouldn't be allowed without a change in the state constitution. And that would require a two-thirds majority in the House and Senate, and approval by voters.

That's because of a 1933 state Supreme Court ruling that said an income tax must apply equally to everyone, rich or poor.

The ruling said income is a form of property and therefore an income tax is essentially a property tax, said Hugh Spitzer, a University of Washington affiliate law professor who has discussed the issue with Brown in the past.

The state constitution says property taxes have to be uniform on every class of property and cannot exceed 1 percent of the value of property, Spitzer said.

If the court today continued to treat income as property, then an income tax could not exceed 1 percent and it would have to apply to everybody, he said.

The Legislature could try to rally a two-thirds vote in both houses for a constitutional amendment, unlikely given GOP opposition.

But Senate Democratic leaders are talking about sending voters a referendum, action that requires only a simple majority vote in the Legislature. Then they'd see what happens if were challenged in court.

Spitzer said he believes there's a good chance the courts now would uphold such a tax, given other court decisions over the past 70 years.

Senate Democrats were vague when asked why they were proposing an income tax in the waning days of the session.

Murray, the caucus chair, said leadership has been researching different options and decided to bring this to the caucus. "There has been a consistent group of people who have talked about it. Certainly the Oregon vote signaled there are some ways you can raise taxes," he said.

Oregon voters in January approved raising income-tax rates on people who make more than $125,000 a year in taxable income — $250,000 for joint filers — and on businesses. Oregon does not have a sales tax.

Andrew Garber: 360-236-8268 or agarber@seattletimes.com