Efforts to Improve Tax Fairness and Tax Adequacy in Washington 1889-2002 Forum on Tax Reform in...
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Transcript of Efforts to Improve Tax Fairness and Tax Adequacy in Washington 1889-2002 Forum on Tax Reform in...
Efforts to Improve Tax Fairness and
Tax Adequacy in Washington
1889-2002
Forum on Tax Reform in Washington
February 22, 2003
Olympia, WA
Don Burrows
The Early Years, 1889-1930 (1)
• Property tax dominant• Early concerns with tax fairness
– Gov Rodgers, 1897 “(our tax structure) throws the burden of government almost entirely upon property owners of small means”
– Bd. Of Tax Commissioners, 1909“Our tax system is crude, unjust, unfair . . .”
“. . the test of taxation should be ability to pay.”
– 1921 Tax Investigation CommitteeCommittee says Sales Tax, No; Income Tax, Yes
– 1929 Tax Study Committee
graduated income tax
The Early Years, 1889-1931 (2)
New taxes added
o Insurance premiums, 1891 o Inheritance tax, 1901 o State poll tax, 1921 o Gasoline tax, 1921
Other important changes o Initiative & referendum amendment, 1912 o Property tax classification & exemption amendment, 1930
Rejected changes
o 1929 bank income tax – unconstitutional o 1931 graduated income taxes – vetoed by Gov Hartley
The Great Depression, New Tax Structure, & WWII (1)
1932-1946
Impact of “Great Depression”
o Widespread unemploymento Loss of incomeso Property tax delinquencies
Citizen action
o 40 Mill (2%) property tax limit initiative, 1932
o Graduated income tax initiative, 1932 - Unconstitutional
The Great DepressionAnd a New Tax Structure (2)
1932 -1946
Legislative action
o 1933 business activities tax – Court OKso 1935 Revenue Act – Retail sales tax and 15 others
Voters defeat income tax amendments
Economic recovery
o Helped by new deal measureso Plus mobilization for WWII
War years produce state tax surpluses
Post WW II and the Baby Boomers (1)1947-1964
Surpluses disappear
o Welfare initiativeso Deferred expenditureso Baby boomers & schoolso Deficits persist
Legislative action
o Gov. Langlie's Corporate Excise Tax unconstitutional, 1951o Increase in excise taxes
Post WWII and the Baby Boomers (2)1946-1964
Gov. Rosellini's Tax Advisory Council, 1957
o Composition of Councilo Tie vote on income taxo Recommends revenue from sales and property taxo Governor supports recommendations
Legislative action, 1959
o Tax on services rejectedo Rate increases in existing taxes
Budget and Accounting Act
New Tax Limits, Income Taxes Rejected &Business Tax Benefits (1)
1965-1976
The revenue shortfall continues, ’65 session
Property Tax Concerns
o Special school levies on the riseo Concern about 50% assessment ordero 30% versus 25% assessment debateo HJR 7 senior citizen property tax exemption, 1966
The manufactures’ tax credit, 1965
Gov. Evans' Tax Advisory Council, 1965-1968
o Single rate income taxeso Reduce property taxes, sales, B&O, etc.o Repeal MTC
New Tax Limits, Income Taxes Rejected &Business Tax Incentives (2)
1965 - 1976
Evans supports income tax
HJR 42 tax reform measure, defeated in 1969
Legislative/Voter action after HJR 42
o Legislature authorizes first city/county sales tax, 1970o Current use assessment amendment, 1970o SJR 1, 1% property tax limit, approved in 1971
HJR 37 tax reform measure, defeated in 1973
o Why defeated?
The Good and Bad Tax Years1977-1984
The good tax years -1977-1980
o Baby boomers stimulate economy
o Reductions absorbed by revenue growth
Sales tax on food exempt, 1978 Inheritance tax repealed, 1982 Funding of basic education reduces special levies, 1977 Retail sales & B&O surtaxes eliminated
Gov Ray’s tax committee
The Good and Bad Tax Years (2)1977 - 1984
The bad tax years – 1981-1984
o Worst recession since great depressiono Tax revenues fall precipitously
Gov. Spellman's Tax Advisory Council, 1982
o Recommends income taxes - Gov. rejects
Large budget cuts and repeated tax increases
o Sales tax back on food – 14 monthso Surtaxes across-the-boardo Large increases in retail sales & B&O taxes
Forecast Council created
Tax Earmarking, another Recession, and New Tax Limits (1)
1985-1996
Tax revenues grow again, 1985
o Recession endso Higher tax rates in place
Gov. Gardner's Committee on WA Financial Future, 1989
o Income tax with limitso Legislature rejects
No major “general government” tax increases from 1985 to 1993
Several tax increases “earmarked” for new programs
New and expanded business “tax incentives”
Tax Earmarking, another Recession, &New Tax Limits (2)
Fall in revenues - 1992-1993 recession
Gov. Lowry faces $1.6 billion shortfall
Legislature imposes large tax increases
o Most of tax increase on B&Oo The service tax compromise
Initiative 601 limit approved, 1993
1994-96 – B&O tax rollbacks and additional business taxexemptions, credits
o Spending limits create surpluses
The Standoff with Initiatives (1)Filling the Void
1997-2002
Recovery and large surpluses, 1997
I-601 limits expenditures
Gov. Locke vetoes B&O tax rollbacks
Compromise on smaller B&O rollbacks
The end around Locke move
o 1997 - Property tax relief - (R-47)o 1998 - From general fund to transportation fund – (R-49)
The Standoff with InitiativesFilling the Void (2)
Citizens tax reduction and spending initiativespassed
o 1999 - MVET elimination (I-695)o 2001 - New property tax limit (I-747)o 2001 - Cigarette tax increase for health care (I-773)o 2002 - School class size reduction (I-728)o 2001 - Teachers cost-of-living increase (I-732)o 2002 - Local government MVET eliminated (I-776)
A New Tax Study Committee - The GatesCommittee
o Tax Reform Recommended
The Standoff with Initiatives Filling the Void (3)
• R-51 on transportation funding, 2002 (defeated)
• Recession 9/11 attack severely reduce state’s revenue
• $2.4 billion shortfall projected
• Governor chooses budget reductions over tax increases
• “Priorities of Government” used to distribute cuts
• Legislative approach so far ºNew exemptions & “incentives”ºTax-Me-More Bill