Town halls on possible changes to Washington’s tax code are well underway, and provide more information on potential recommendations the state’s tax work group will make to the legislature. 

The town halls are being held by the Tax Structure Work Group virtually with constituents in each area of the state. On Oct. 13, the group met with residents of the Olympic Peninsula and surrounding areas. 

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Four scenarios for changing the tax code were presented. The first would allow the state to tie property tax increases to population and inflation. Currently, the state is prohibited from raising property taxes more than 1% each year without approval from voters. 

A second scenario would come by waiving property tax for the first $250,000 of a person’s primary residence, essentially eliminating the tax for anyone whose home costs less. To offset this, there would be a 1% wealth tax levied on financial property like stocks and bonds worth more than $1 billion. 

A third scenario focuses on business, and would eliminate the B&O tax and replace it with value-added tax, or margins tax and employer compensation. 

The fourth scenario would be to eliminate the B&O tax and replace it with corporate or personal income tax, while reducing sales and property taxes. 

While these scenarios are only meant to generate discussions, the work group will use input from the town halls to inform their recommendations to the legislature, which is expected to take action on tax reform in 2023. 

Washington State by some measures has the most regressive tax structure in the country, meaning the more money someone makes, the less they end up paying in taxes as a total share of their income. It means that poor and working families pay a higher percentage of their income in taxes than the wealthy. 

While the state Supreme Court has ruled against a progressive income tax in the past, Sophie Glass, with Triangle Associates, who facilitated the town hall, said this doesn’t apply to a flat income tax. 

“In the past the Washington State Supreme Court has found that just a progressive or graduated income tax is unconstitutional, it hasn’t really weighed in on a flat income tax,” Glass said. 

Perhaps in reaction to the possibility of a state income tax, nine cities and one county have passed ordinances prohibiting local income taxes. 

The total tax collected for Washington State in 2020 was $26.83 billion, and a breakdown of the sources can be seen in the photo below. 

The lion’s share of state taxes came from sales tax. Around 14% came from property taxes. Local municipalities also collect their own sales and property taxes in addition to the state taxes. 

The state’s biennial 2021-23 budget, excluding capital and transportation budgets, totaled $56.2 billion in general fund state spending. Of that, nearly half goes to K-12 schools and 33% goes to human services. 

Other tax issues

In addition to the tax work group, there’s several other tax-related items to be aware of. The first is the long-term care tax, which is set to begin collecting through a 58 cents per $100 payroll tax beginning in January. The tax would collect money to be paid out for long-term care to people when they need it, but the total benefit is capped at $36,500. 

Legislators from both sides of the aisle have expressed interest in changing the fund in the 2022 session. 

Two lawsuits challenging the state’s capital gains tax were also allowed to proceed after a Douglas County judge tossed out the state’s requests to dismiss the cases, and change venue to Thurston County. 

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