Washington state needs a modern tax system

The Model T was a fine machine in its day. So were scrub boards, rotary telephones and eight-track tapes. They all made sense for their time. But that time is long past.

So why do we rely on a tax structure that is even more outdated?

Our tax system, devised a century ago for an economy based on agriculture, manufacturing and local commerce, is so irrelevant to today's realities that we can no longer sustain the basic services on which many Washingtonians rely. In fact, a recent study by the Institute for Taxation and Economic Policy identified ours as the most regressive tax system in the country.

Here's why our system is breaking down:

• People who earn less than $20,000 annually pay 17.3 percent of their family income toward sales and excise taxes and property taxes.

• People who earn between $99,000 and $198,000 pay 7.6 percent toward their tax bill.

• People who earn more than $537,000 a year pay just 2.9 percent.

Under our system, in other words, minimum-wage and middle-class families struggle to make ends meet while those who can afford to pay the most actually pay the least.

That's a big reason there's such fierce public resistance to the modest tax increases our state needs to maintain its essential public services. Middle-class taxpayers complain they can't afford to pay even more than they already do, and they're right — tax increases will eat at money they need to maintain their homes and their kids' educations.

That forces a Sophie's Choice on the middle class — pay higher taxes or suffer brutal cuts in schools, public safety and other vital services.

It doesn't have to be this way. In 2003, and in every year since, I have proposed a tax-reform plan that would ease the tax obligation on the middle class, on limited-income homeowners and on small businesses, while also helping us better withstand recessions.

I don't even claim credit for the idea — it came right from the 2003 Gates Commission. It made sense then and it makes even more sense today. In fact, if we'd adopted the commission's recommendation years ago, we'd be in much less of a recession in our state today.

The plan would create a state income tax under which low-income and middle-class residents would pay less and the wealthy more, with much of it offset by reductions in state sales tax, state property tax, business-and-occupation tax credits, and a cap on regular property tax. The plan would also direct a portion of revenues into a student achievement fund and install a key safeguard — it would require a two-thirds majority vote to pass any future changes to tax rates.

The need for these long-needed changes worsens by the day. Earlier this year, in the face of the worst recession since the Great Depression, the Legislature had to cut $3.3 billion in programs and public services to balance the budget. Since then, revenues are projected to fall short another $2.8 billion. Under our current system, our only options will be to shred vital public services or raise taxes on people who are already struggling.

Neither of these makes sense. It's time to adopt a tax structure designed for 2010 instead of 1910.