Boom skips the lower middle class, but tax load falls heavily on them
Wednesday, April 5, 2000
By ROBERT GAVIN SEATTLE POST-INTELLIGENCER CAPITOL CORRESPONDENT
Kursta and Christopher Moore, young parents of four, see prosperity all around them: luxury cars, upscale shops and grand homes.
But when they look at their household budget, all they see is trouble: $2,300 a month in expenses and $2,000 in take-home pay.
Kursta Moore does her Sunday shopping at Costco with all four kids in tow. Families like the Moores pay more than their fair share of taxes.Scott Eklund/P-I They hear legislators in Olympia talking about tax relief. But they know their family won't benefit from the property tax proposals because they rent their Bellevue home.
I-695 didn't help much either. The sales tax alone on repairs to their aging minivan nearly consumed their license-tab savings.
Meanwhile, when they need clothes for their 6-year-old, diapers for their toddlers and formula for their 18-month-old baby, they pay one of the nation's highest sales taxes.
"We've done everything right," said Kursta Moore, 27. "But we don't see the prosperity. We don't get the tax cuts."
The Moores represent the lower middle class and working poor families on whom Washington's taxes fall most heavily, and for whom little relief is in sight. Left out by the economic boom, yet squeezed by the rising cost of living, they find themselves largely forgotten by lawmakers debating tax cuts, tax credits and other ways to give back some of the money pouring into state coffers.
These families bear the brunt of a tax system called the most regressive in the nation, one that taxes the poor at higher proportional rates than the rich.
Households such as those of the Moores, who earn about $30,000 a year, spend nearly twice as much of their income on state and local taxes as a family making $150,000 a year, according to the state Department of Revenue.
But for all the talk of reform coming from Olympia, precious little has been said about tax reform. Any suggestions of overhauling the state's patchwork system have been quickly dismissed by leaders of both parties.
Yet, some lawmakers say the state can't put off a debate on tax reform much longer. Washington has become ever more dependent on the sales tax with the elimination of the motor vehicle excise tax and expected property tax cuts. And this growing dependence, some lawmakers say, poses grave dangers to the state, which already collects about half its money from sales taxes.
First, sales taxes are volatile, and the slightest cooling of the economy -- as in the early 1990s -- could plunge the state into a deficit.
Second, Internet commerce, which makes it easy to buy out of state and avoid Washington taxes, could suck more than $1 billion each year from the state by 2005, according to some estimates.
"It is going to collapse," warned Rep. Brian Thomas, R-Renton, who proposed reforms that would slash existing sales and business taxes and impose personal and corporate income taxes.
"We have created such a cumbersome and idiotic system over the past 100 years," Thomas said. "And unless we can discuss it without having a knee-jerk reaction, we're going to have a huge, huge problem in the next 10 years."
The discussion, so far, has been short, but not so sweet.
Thomas' proposal was criticized harshly by his own party, while most Democrats laid low after it surfaced. Gov. Gary Locke, citing the repeated rejection of an income tax by Washington voters, said he flat out opposed it.
Instead, Locke has called for simplifying sales taxes as part of a nationwide effort to make them uniform across state lines and to solve collection problems posed by e-commerce.
"You simplify, and you make it easier for businesses to comply with," said Fred Kiga, director of the state Department of Revenue. "Having a simple tax system has the best chance of voluntary compliance."
Senate Minority Leader James West, R-Spokane, said most Republicans support only one kind of tax reform: one that cuts or eliminates current taxes while making state government spend less.
"When taxes are too high," West said, "they're regressive for everybody."
Taxes among most regressive
Washington is one of only seven states without a personal income tax, a tax considered progressive because it is based on people's ability to pay. The sales tax, however, is perhaps the most regressive because it makes no distinction between rich and poor.
Both have advantages and disadvantages, said Neil Bruce, an economics professor at the University of Washington.
Income taxes tend to be more stable and fair, but can discourage savings and investments.
Sales taxes can have the opposite effect. By taxing consumption, they can encourage the accumulation of capital and economic growth. But they also fall most heavily on those least able to pay.
Like the Moores.
Christopher Moore, the family's main breadwinner, works at a local paint store. His wife, who quit a bank job to care for their chronically ill baby, supplements the family income baby-sitting or cleaning houses.
They make just enough money to disqualify them from most subsidy programs, forcing them to rely on help from their church. They try to save, and they dream of a down payment for their own home. But with four kids and rent that eats up half their net income, it's nearly impossible to get ahead.
There's always something: clothes, diapers, over-the-counter medicines, car repairs. And for each of these somethings, they pay state and county sales taxes that add 8.6 percent to the cost.
"We've chosen to work," Kursta Moore said. "And the state reams you everywhere you look."
Washington relies more heavily on the sales tax than any other state, and its tax system is the most regressive in the nation, according to a 1996 study by Citizens for Tax Justice and the Institute on Taxation and Economic Policy, two Washington, D.C., think tanks.
That study, completed before the I-695 tax cut, showed that the poorest 20 percent in Washington paid more than 17 percent of their income in state and local taxes. The richest 1 percent paid less than 4 percent of their income.
Critics of the system note that the poorest pay high sales taxes on necessities, but the wealthiest go untaxed on the capital gains realized in the economic boom.
Washington's wealthiest 6 percent accounted for nearly 80 percent of the capital gains reported in the state in 1997, according to the Internal Revenue Service.
Livestock semen is tax free
Some lawmakers say tax fairness can be achieved short of an income tax. Among the possibilities: exempting from the sales tax essentials such as clothes, while ending special-interest exemptions on goods such as livestock semen, manufacturing machinery and airplanes used in interstate commerce.
Many of these exemptions, approved over the past 150 years, aim to promote economic development and help Washington companies compete. Kriss Sjoblom, a Washington Research Council economist and tax policy expert, said states should think carefully before adopting tax policies aimed at redistributing wealth.
"Businesses and people are mobile," he said. "If there's a better tax climate in another state, they have the ability to move."
But Kursta Moore figures her family couldn't afford the cost of leaving Washington. On the other hand, she added, they can barely afford staying here.
The cost-of-living only seems to rise. The struggle to pay bills goes on month to month, the household budget deficit made up by gifts from her church, an extra house cleaning job or, maybe, a short-term grant from a social service agency.
Sometimes, she said, the prosperity that surrounds her family in the wealthy Eastside makes the struggle seem harder. But it could be worse.
"I'm so thankful I have a husband that works," she said. "If you're a single mom in this situation, you're dead."
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