Sunday, December 9, 2007

On Taxes in the State of Washington

"The purse of the people is the real seat of sensibility. Let it be drawn upon largely, and they will then listen to truths which could not excite them through any other organ." --  Thomas Jefferson

"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." - Ronald Reagan

I can't think of any issue as controversial as taxes, yet they are essential to provide the essential services & desirable amenities that citizens need & want.

The main points of contention seem to resolve around what constitutes 'level of service' and who pays and how much.
There is often a big disconect between the various levels of government and the taxpayer, meaning some major hardships exist that are difficult to understand enough to correct them.

Taxes are one of those 'third rail' subjects in which rational discussion is difficult because strong emotions are evoked.
Yet, we have to find a way to have that discussion if we are to ever make the tax system fairer, while retaining the level of service we need and expect.

There are only two criteria that need to be satisfied when collecting revenues for so-called 'Enterprise Funds' like our Water & Sewer Utilities, and similar operations:

1) Rates & fees for such funds are expected to raise all the money needed to operate them.
2) These monies are to be collected as fairly & equitably as possible.

That's it.
Pretty simple, isn't it?

The collection of Enterprise Funds the City of Bellingham has adds up to far more than our General Fund, which is the primary source of wages & benefits for most City employees.

Revenues for the General Fund come from a variety of sources, including B&O tax; Utility tax; Sales tax; Property tax; Other taxes, including grants & interest from invested funds; Miscellaneous Charges; and Interfund Transfers which go to pay for the proportion of administrative support needed for various departments.

In concept, balancing the General Fund is similar to balancing Enterprise Funds, but in practice it is far more difficult.
That is because there are almost as many diverse and fluctuating sources of revenue as there are uses for it.

By law, the City's budget must be balanced each year, but there are many ways to achieve that.
Some of the ways are to raise taxes, shift funds from lower priorities, obtain grants from outside sources, and reduce services and staff.
But, all of this must be done under rules and regulations mandated by the Federal & State governments.
Sometimes that ain't easy!
Especially, during times of major change - either growth or recession.

Here are some thumbnail info-excerpts from the Internet to explain our situation, and why it is particularly problematic in the State of Washington:

'Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation. United States taxation includes local government, possibly including one or more of municipal, township, district and county governments. It also includes regional entities such as school and utility, and transit districts as well as including state and federal government.'


'The US states that do not levy a state income tax are Alaska, Tennessee, Florida, Nevada, South Dakota, Texas,[20] Washington state, and Wyoming.'


'The state of Washington has the most regressive tax structure in the U.S.
It is one of only seven states that does not levy a personal income tax.
The wealthiest one percent of Washington taxpayers pay 3.2% of their income in taxes.
The poorest fifth of Washington taxpayers pay 17.6% of their income in taxes.

The state also does not collect a corporate income tax.
However, Washington businesses are responsible for various other state levies.

Washington's state sales tax is 6.5 percent, and it applies to services as well as products.
Most foods are exempt from sales tax; however, prepared foods, dietary supplements and soft drinks remain taxable.

The combined state and local retail sales tax rates increase the taxes paid by consumers, depending on the variable local sales tax rates, generally between 8 and 9 percent.

An excise tax applies to certain select products such as gasoline, cigarettes, and alcoholic beverages.

Property tax was the first tax levied in the state of Washington and its collection accounts for about 30 percent of Washington's total state and local revenue.

It continues to be the most important revenue source for public schools, fire protection, libraries, parks and recreation, and other special purpose districts.

All real property and personal property is subject to tax unless specifically exempted by law.
Personal property also is taxed, although most personal property owned by individuals is exempt.
Personal property tax applies to personal property used when conducting business or to other personal property not exempt by law.
All property taxes are paid to the county treasurer's office where the property is located.

Washington does not impose a tax on intangible assets such as bank accounts, stocks or bonds.
Neither does the state assess any tax on retirement income earned and received from another state.
Washington does not collect inheritance taxes; however, the estate tax is decoupled from the federal estate tax laws, and therefore the state imposes its own estate tax.'


"William H. Gates, Sr., the father of Microsoft co-founder Bill Gates, came to a different conclusion in a 2003 study of tax schemes California, Idaho, Oregon, and Washington, arguing that property taxes were regressive by one to three percent (depending on the state), between the lowest and highest income brackets."


NOTE: Mr Gates served on a Commission that was convened to analyze taxes in the State of Washington and make recommendations for changes that would them more like the 'Enterprise Funds' described above.
That means a tax system that is more stable and fair than what exists now.
One of the key recommendations was to institute a State Income Tax, not as an additional tax, but as a replacement to other taxes that were considered less fair.

To date, our State Legislature has lacked the courage to effectively address this issue, so divisive has it become.
That is to our detriment, but only if citizens really do want a tax system that is fairer than the one we have.

The terms 'progressive', 'regressive' and 'proportional' are used to describe the way taxes are generally applied and affect people.
Like many subjects, this one gets pretty complicated, pretty quick!

".....the origin of modern 'progressive' taxation to Adam Smith, who wrote in The Wealth of Nations:

The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.


List of taxes and fees imposed by federal, state or local laws.

Alternative Minimum Tax (AMT)
Capital gains tax
Corporate income tax
Estate tax in the United States
Excise tax (includes taxes on cigarettes and alcoholic beverages)
Federal income tax
Federal unemployment tax (FUTA)
FICA tax (includes Social Security tax and related programs)
Gasoline tax
Generation Skipping Tax
Gift tax
IRS penalties
Local income tax
Luxury taxes
Property tax
Real estate tax
Recreational vehicle tax
Road usage taxes (Truckers)
Sales tax and equivalent use tax
School tax
State income tax
State unemployment tax (SUTA)
Telephone federal excise tax
Vehicle sales tax
Workers compensation tax

"The taxpayer: That's someone who works for the federal government but doesn't have to take the civil service examination." - Ronald Reagan  

"Government is like a baby: An alimentary canal with a big appetite at one end and no sense of responsibility at the other." - Ronald Reagan    

"The nearest thing to eternal life we will ever see on this earth is a government program." - Ronald Reagan