Finally, WA no longer has the nation’s most unfair tax system

It took nearly 30 years, a few political sea changes, an outbreak of socialistic fervor and some backlash to Big Tech’s “prosperity bomb.” But Washington is No. 1 for taxing the poor no more.

Our long, paradoxical reign as the place that goes easiest on the rich, at the expense of the poor, is over.

“We are over here celebrating,” said one activist group that has pushed at this boulder since 2006, the Washington State Budget and Policy Center in Seattle. “Washington no longer has the nation’s worst tax code.”

You’ve likely heard a mention, or thousands, about this in local politics over the years. The notion that Washington’s tax system is uniquely “upside-down,” because it hits the poor much harder than the wealthy, goes back at least to the 1960s, when then Gov. Dan Evans, a Republican, tried to implement a state income tax.

I’d say I’ve heard the phrase “most regressive taxes in the nation” from activists and politicians — and economists — most every year of my working life as a journalist here. And that harks back to another millennium.

It really got spotlighted starting in 1996. A Washington, D.C., analyst group called the Institute on Taxation and Economic Policy put out a ranking of taxes in the 50 states called “Who Pays?” For the first time it looked at who’s paying local and state taxes by income level. And man, was it embarrassing for Washington’s West Coast progressive self-image.

“The state of Washington is the highest-tax state in the entire country for poor people,” that 1996 report accused. “In fact, when all state and local sales, excise and property taxes are tallied up, poor families in the State of Washington pay 17.1% of their total income in taxes.”

Our richest families, meanwhile, paid only 3.6%. It was as if Washington’s tax system had been designed by Dr. Evil, with the families struggling the most being hit with nearly five times the effective tax rate as the wealthiest.

And that was before the tech bomb dropped.

During the next 20 years, the gaps only grew. The D.C. tax group put out five more editions of its “Who Pays?” report, and each one tapped Washington state as America’s worst — and by a mile.

The reports focus only on state and local levies, and so don’t include federal taxes, which are designed to be progressive (meaning people who make more are intended to pay higher rates.) Some state tax systems also are progressive, while others are at least proportional by income. All the reports singled out Washington for being tilted the most aggressively the opposite way, against the poor.

They said it’s because our state has no income tax, relies heavily on sales taxes and has some of the highest taxes on products like beer, liquor, cigarettes and gasoline in the country.

By the height of Amazon’s prosperity explosion, in the mid-2010s, the poorest workers here were paying seven times the effective rate in local taxes as the wealthiest 1 percenters. The rich were also racing away in sheer earning power. Back in 1996, the average top 1 percenter in Washington made 40 times the money as the bottom 20%, the ITEP reports say. Today, they make 112 times more.

It all added up to a hollowness — that our state only talked a progressive game.

Well you may recall what happened next: There were some high-profile campaigns with bullhorns; a socialist got elected in Seattle; Bernie Sanders’ “democratic socialist” phenomenon burst on the scene; some megabillionaires were demonized; and Democrats swept all branches of power in Olympia.

According to the 7th edition of the Who Pays report, out this month, it all led to changes that have prompted Florida to dethrone Washington as the most unequal tax state in America. Our poorest earners dropped to paying 3.4 times the rate as the top earners. That’s still regressive, but lower now than Florida’s 4.9 times.

The report credits three shifts: the passage in Seattle in 2020 of a progressive payroll tax on high earners (aka the Amazon Tax); the new state capital gains tax on stock profits, which passed in 2021 and helps pay for schools; and the new state Working Families Tax Credit, also passed in 2021.

That last one gives tax rebates of up to $1,250 to lower-income workers and families (individuals making less than $18,000, or two-child families making less than about $52,000). It has helped drop Washington from being the harshest tax state on poor people, to the fourth harshest, after Pennsylvania, Illinois and Hawaii.

A few thoughts on this odyssey:

It’s remarkable the Sisyphean struggle it took, even in a blue state, to make these modest shifts away from a clearly draconian system. Never underestimate the power of money in politics.

It’s probably fitting that the struggle’s main foil, that ultimate symbol of tax inequity Jeff Bezos, has decamped to the new top haven of tax regressivity, Florida. In the end, Bezos got his use out of our state. And the tax-the-rich movement sure made use of him — even if he has squiggled out of paying most of the actual taxes.

Next, we’re still the fourth worst state for the poor. Lawmakers ought to couple their ardor for taxing wealth with more effort toward reducing fees and levies that hit working people.

Finally, the money, as it does, is fighting back. A $7 million campaign from wealthy anti-taxers has placed initiatives on the fall ballot to repeal the capital gains tax for schools, and to bar any future state or local income taxes, among other topics.

So we’re no longer No. 1. But the struggle continues. I was looking forward, after nearly 30 years, to a respite — to hearing no more talking points about us being America’s most regressive place. It looks like that’ll have to wait awhile more.