Region has an unusual tax history

WASHINGTON HAS a sales tax and no income tax.
Oregon has an income tax and no sales tax.

And when the voters of
each state have been asked if they’d like a
taste of the other state’s system, they’ve said
no.

By BILL VIRGIN
SEATTLE POST-INTELLIGENCER COLUMNIST

In fact, they’ve not just said, "No," they’ve said, "Hell, no."

In 1993, the last time Oregon voters were asked to authorize a sales tax, the
proposal garnered just 25 percent in yes votes. The previous eight times the idea
had been presented to voters, they rejected the idea of a sales tax, and the vote
in favor usually hasn’t been much better than what happened in 1993.

In 1973, the last time Washington voters were asked if they would amend the
state constitution to permit an income tax, the proposal got about 23 percent of
the votes.

It didn’t do much better the five times before that.

But now, with government’s present budget plight, combined with the spectacular
public flameout of anti-tax crusader Tim Eyman, those who have long lusted for an
income tax in Washington are making noises about trying again.

That a state would have one of the major taxes but not the other is not that
unusual. A chart from Yahoo! Finance shows seven states with no income tax
(another two tax just interest and dividend income). Five states have no sales tax.

But through quirks of history and geography, Washington and Oregon appear to
be unique and notable for being neighboring states with such opposite tax
structures.

How’d that happen?

Interestingly, Washington voters did once approve an income tax — through
Initiative 69, passed in 1932. The Legislature approved a second in 1935. (This
background comes from a law review article written by Hugh Spitzer, a partner at
the Seattle law firm Foster Pepper & Shefelman and a member of the state’s Tax
Study Commission). The income tax was promoted, particularly by farm groups,
as a relief from property taxes.

But in both cases the state Supreme Court rejected the personal income tax,
arguing that it violated provisions of the federal or state constitution. In particular
the court focused on a part of Washington’s constitution requiring "uniform and
equal rate of assessment and taxation on all property in the state, according to
its value in money." A graduated income tax (the more you make, the higher
percentage you pay) violated the uniformity clause, the court said.

Oregon, meanwhile, got its income tax in a vote of the people not long after the
federal government’s income tax was authorized by the 16th Amendment. Carl
Hostika, a former Oregon legislator and professor of planning, public policy and
management at the University of Oregon, says the income tax was in keeping
with Oregon’s "progressive" movement. Sales taxes that placed the same burden
on rich or poor were considered regressive, and that has continued to be a
powerful argument over the years against a sales tax in Oregon, he says.

Another group in Oregon has had a more practical argument against a sales tax
in the state. Portland-area stores reap a healthy cross-border business of
shoppers looking to avoid Washington’s sales tax. "The retailers have always
been there to remind us of that," Hostika says.

Times change and the legal arguments and economic conditions that shaped a
state’s tax structure decades ago can change. In fact Spitzer argues in his law
review argument that a closer look at the 1930s decisions and changing case law
indicate the argument of a constitutional bar to an income tax is not as
insurmountable as it might seem.

But opposition to a specific kind of tax has moved beyond legal arguments to
what might be termed, according to University of Washington economics
department Chairman Neil Bruce, the "devil you know" phenomenon. People are
comfortable sticking with what they know.

That’s coupled with a sense that adoption of another tax would not be a partial or
total replacement for some other tax but in addition to what’s already in place.
"What people in Washington think when they hear income tax, and what people
in Oregon think when they hear sales tax, is more taxes, additional taxes," says
Bruce, also a member of the Tax Study Commission.

Much as the income tax was promoted in Washington as property tax relief, so
too has the sales tax been offered in Oregon as a way to lessen the dependence
on property taxes. But as Hostika notes, "There’s never been a way anyone could
package (a sales tax) to get more than 25 to 30 percent of the vote."

Oregon has a more recent gauge of voter distaste for adding a sales tax than
Washington does with testing sentiment for an income tax. It’s been nearly 30
years since the most recent vote in this state. Income tax proponents may think
enough time has passed that they could do better than 23 percent.

They’re right that it’s been a long time, and the electorate is much different. But
remember too that those 30 years have included tax revolts and limitation
measures from Massachusetts to California … to Washington, where votes on tax
and spending initiatives indicate public sentiment not much more fond of paying
more taxes than 30 years ago.

Proponents of the income tax need a lot more than a shift in electorate sentiment
from cool to tepid. Remember that a pro-income tax vote could double its share of
the electorate from that 1973 vote — and still lose badly.

NEXT: The income tax. It’s not the cure-all it’s promised to be.

P-I reporter Bill Virgin can be reached at 206-448-8319 or
[email protected].

http://seattlepi.nwsource.com/virgin/61829_virgin12.shtml