Rep. Noel Frame (D – Seattle) serves as Chair of the House Finance Committee. In that capacity, she has jurisdiction over tax and fiscal policy issues.
This week, Frame introduced the “Washington State Wealth Tax” – a bill which would assess a one percent tax on financial intangible assets, with the first $1 billion exempt. The tax would bring in an estimated $2.25 billion in 2023 and $2.5 billion in 2024.
Frame’s proposal fits into a broader effort to reform Washington State’s tax code – found to be the most regressive in the country in some analyses. I spoke with Frame to hear more about her proposal and why she thinks the sui generis nature of the previous year has laid the groundwork for movement on progressive tax reform.
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Michael Goldberg: Can you provide some context for this proposal, as far as why you are introducing it now?
Rep. Noel Frame: The context is that Washington State has the most regressive tax code in the country. What we mean by regressive is that Washington State’s tax code asks low and middle-income people and small startup and low budget businesses to pay a disproportionate share of their income in taxes, by way of comparison to the wealthiest individuals and largest corporations in the state.
As we seek to look at restructuring the code, I am introducing this bill now because I think this could be an incredible tool to help us with that structural tax reform and maybe finally reduce responsibility for our low and middle-income families.”
MG: How have you ensured that this bill will pass muster in the courts?
NF: This is a flat rate property tax at one percent. It complies both with uniformity and with the constitution’s one percent rule. It is in full compliance with the constitutional provisions for a property tax.
The class of property we’re talking about is financial intangible properties. Right now, intangible property is fully exempted from the tax code. What this does is modifies that tax preference such that financial intangible property is now subject to tax.
What I’m not including is intangible property that is not financial. Good examples of that are brands, trademarks, customer lists and goodwill (which are often used in the valuation of companies). This is also applicable to individuals, not corporations. So, we think we’re fully compliant.”
MG: Several proposals have been brought forth to make Washington’s tax code more progressive. How does your proposal fit into the broader push to reform the tax code?
NF: As Chair of the House Finance Committee, I have jurisdiction over tax and fiscal policy issues. Unlike the Senate, we have a committee in the House dedicated to this area of public policy. We will be considering several proposals this year that seek to give Washington State better tools.
Right now, we are so reliant on regressive tools like sales tax. Property tax is also challenging for many Washingtonians, particularly people with a fixed income. So we’re looking at several revenue proposals that are tools we should have in the tool box, including capital gains, wealth and others.
I think it’s really important to note that so often, people think about tax policy as a means to an end. ‘The purpose of taxes is just to raise revenue to pay for things.’ What I’m saying here is that how we raise money and from whom we raise it is the question these bills tackle.
I get questions like, ‘Why now Noel? We have federal money. The revenue forecast is not as dire as it was last June. Why would you do this? Your revenue looks good.’ My response is, ‘Sure revenue looks good, but on the backs of whom?’
We’re bouncing back on the backs of small startup and low-margin businesses who are barely keeping their doors open right now. We’re bouncing back on the backs of low-income families who are barely keeping a roof over their head and food on their table – that’s who we’re asking to pay a disproportionate share of community investments in Washington State.
Why are we not asking the wealthiest people among us in our state, and in some cases the wealthiest people in the world, to pay a more equitable share? It’s because we don’t have the tools in the toolbox to do it. That’s why we’re considering a capital gains tax, a wealth tax and others; because they’re better tools.”
MG: A common criticism you hear about tax proposals like these is that they will drive wealthy people and businesses away, effectively killing jobs. What is your response to that criticism?
NF: There is empirical evidence about the “Myth of Millionaire Tax Flight,” which is the name of a book I would recommend by a guy named Cristobal Young. He does a really great analysis which shows that it’s not tax policy that drives the decisions of wealthy people.
People choose their home based on the amenities the community offers, both personally and professionally. If you look at Washington State, we have incredible amenities. We have an incredible natural environment, access to international ports, an incredible pool of talent, etc. That’s why people choose to live here and it’s why they stay. It’s not tax policy. And really, if they go anywhere else in the United States, they’re going to get hit with taxes there as well.
In the scheme of things, we are really not a high tax state. This just helps us get on a par with some of the other states that have the amenities we do. These states ask wealthier people to pay a bigger share. So first and foremost, there’s not a lot of other places to go.
I’m also the Co-Chair of the Tax Structure Work Group, which is separate from my role as House Finance Chair, but the processes are happening in parallel. We just did 18 months of analysis and one piece of analysis that came out of that was that the there is an extraordinarily weak relationship between tax policy and economic competitiveness. It goes back to what I said before; it’s true for corporations just as it’s true for individuals. It’s about talent, amenities and infrastructure. It’s not about tax policy.”
MG: When thinking about the tax code, aside from what priorities tax revenue funds, how important is the concept of fairness as a priority in and of itself?
NF: I think that is wholly the point of this legislation; it is about the tax code and how inequitable it is. Frankly, I think inequitable is a better word than unfair. It is inequitable when someone making $25,000 or less is paying 18% of their income in taxes while the top 1% is in this state, which is $550,000 or higher, are paying 3%. You can imagine if you narrowed that just to billionaires.
It’s not right and I don’t think it’s in step with our values in Washington State. We are social and economic leaders on a global stage and we’re asking people who make $25,000 or less to pay 18% of their income in taxes. I just don’t think it’s acceptable.
As far as where the money goes, the intent is to use revenues raised from this bill to do several things. For instance, to provide credits against tax paid, such as the Working Families Tax Credit. The Working Families Tax Credit is intended to be a credit against sales tax. We are having a hearing on the wealth tax next Tuesday, February 2nd at 1:30 pm in the Finance Committee, and the only other bill being heard that day is the Working Families Tax Credit. That is not an accident. That is to encourage people to imagine the possibilities.”
MG: With all of the other exigent issues this session, do you see this bill making it to the floor?
NF: I’m opening up a conversation about this policy. I think it’s a really unique time in our state’s history where people are really suffering. If you talk to any member of the Legislature who has been reading their email over the past nine months, it’s pretty devastating.
The concept of taxing intangible properties has been brought up before, but in this form, strictly financial intangible property, it’s a relatively new idea. So I wanted to put it out there.
I think we’re in a very unique moment in time where I think it could really have legs. I want to see what my colleagues think about it but from what I understand, this is an enormously popular, and populist, idea because a lot of people in Washington are thinking through what it will take for us to recover. How will our economic recovery be equitable and who is going to pay for it?
I think if the wealthiest Washingtonians are thinking really strategically about this, they’re going to want to help Washington State recover and bounce back from this crisis. We can raise funds from those who can afford to share a little bit in the responsibility – because right now they’re getting a pretty good deal – and put that money back into the pockets of people who will immediately spend it in their local communities through a mechanism like the Working Families Tax Credit. We know that that works.
We saw it last summer when the federal stimulus checks got into the pockets of Washingtonians. We saw our revenue forecast bounce back. To me it’s not only about making the tax code more equitable. It’s about how we are going to have an equitable economic recovery post-COVID-19.”
This interview has been edited for clarity and length.
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