FORBES: Will State Officials Play Benedict Arnold With Washington Taxpayers?
A dangerous proposal now exists in Washington State. This week, State Treasurer James McIntire offered his idea for fully funding K-12 education: lower sales and property taxes and create a state income tax.
Both ideas are problematic, the implementation of a state income tax especially so. Not only is it bad economic policy to raise the price on work, but this idea also runs contrary to the will of Washingtonians. In 2010, voters in the state rejected the Washington Income Tax Initiative, which would have levied a tax on adjusted gross income for individuals making more than $200,000 per year.
Nearly 66 percent of voters said no to the initiative, seeing it for what it was: a shortsighted cash-grab that would discourage the types of entrepreneurs and small business owners who are so integral to Washington’s thriving economy. McIntire’s proposed tax would produce an even greater disincentive, by levying a 5 percent flat-rate income tax on all taxpayers. Given the sound rejection of the 2010 initiative, it seems highly unlikely that Washingtonians would support this ill-conceived proposal.
As one of the nine states in the nation with no income tax, Washington enjoys a variety of competitive advantages. Between 1992 and 2011, the state gained $12.65 billion in net adjusted gross income (with $2.17 billion coming across the border from Oregon, with its top income tax rate of 9.9 percent). Successful tech executives choose to work, live, and play in Washington State because they can save and invest more of their income, and allow their employees to keep more of their take-home pay.
What’s more, the correlation between a higher income tax and better educational outcomes simply does not exist. The U.S. Department of Education measures the value of K-12 learning by administering uniform tests, in a variety of subjects, across all 50 states. Of the 11 states that introduced an income tax in the past 50 years, none achieved significantly better test scores. In fourth-grade math, seven of the ten states’ scores fell. In eighth-grade math, seven states’ scores fell relative to the U.S. as a whole (with Nebraska plummeting by a startling 4.57 percent).
As my co-authors and I point out in An Inquiry into the Nature and Causes of the Wealth of States, there can be a very large difference between the dollar amount state governments spend on public education and the actual services those programs provide to students in the classroom. In fact, in 2012 in McCleary v. the State of Washington, the Washington Supreme Court found that “fundamental reforms are needed for Washington to meet its constitutional obligation to its students. Pouring more money into an outmoded system will not succeed.”
While no tax is a “good” tax, there are taxes that do less harm to a state’s economy. The more stable approach to funding K-12 education would be to raise (not lower, as McIntire suggests) the property tax. Property taxes are less volatile because they are not mobile. A successful Washingtonian can pack up her business and move to another state, taking her income (and her income tax dollars) with her. A property can do no such thing and remains a more stable income source. The same is true of sales taxes, which present a more reliable alternative to income tax – and levy a cost on consumption, not on work. Plus, consider the fact that two thirds of our nation’s economy is driven by personal consumption. Consumers must prefer the ability to control their tax burden via sales taxes, rather than receive income-tax mandates from Olympia.
When working toward a solution to fully fund K-12 education in Washington, state leaders must take into consideration the will of the voters – the majority of whom want nothing to do with an income tax, as the 2010 vote proved. They must also consider their current coveted status as a low-tax, high-growth state, and do all that they can to protect that status. The only meaningful justification for adopting an income tax where none exists today would be to shrink the state’s economy relative to the rest of the U.S. That is precisely what happened in eleven of eleven cases where states chose to create a personal income tax. Quite simply: There’s no value in becoming the 12th state to introduce an income tax – only to see test scores fall and residents flee.