Study: Constitutional Challenge to Income Tax Would Follow Success of Initiative 1098 in Washington
Damage to State Tax Climate Predicted Washington, DC, October 26, 2010 - If Initiative 1098 passes next week, Washington will have its first income tax, and it will almost certainly face a strong constitutional challenge, according to a new study by Joseph Henchman, tax counsel and director of state projects at the Tax Foundation.
"Since the income tax was ruled unconstitutional in Washington," said Henchman, "Evergreen State voters have rejected constitutional amendments to permit one six times. The vote in 1973 was 77% against the tax despite approval by the legislature and the governor." Popular opposition to income taxation has always been strong in Washington, one of the seven states with no personal income tax. The other six are Wyoming, South Dakota, Nevada, Texas, Florida and Alaska. Tennessee and New Hampshire impose no wage tax but do tax interest and dividends. Washington would be the first state since Connecticut in 1991 to enact a personal income tax.
Even if it is constitutional, it is certainly unlike any other state's income tax, out of the norm in two respects: it would apply to all adjusted gross income with no exemptions or deductions, and it would apply only to high-income earners.
"Just as several other states are overturning so-called millionaires' taxes or allowing them to expire," said Henchman, "Washington would be adopting one." Comparative rankings of state tax climate by the Tax Foundation and other research groups uniformly praise Washington's current system of forgoing a tax on wages and other personal income, and those rankings would plummet if a personal income tax is enacted. Oregon's competitive posture in the region would rise markedly, as Washington would be matching Oregon's taxation of high wages, while Oregon maintains its competitive advantage of having no general sales tax.
The study is Tax Foundation Special Report, No. 186, "Washington Voters to Consider High-Earner Income Tax," by Joseph Henchman, Tax Counsel & Director of State Projects, and will be available online at taxfoundation.org at 9am, October 26.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.