But during the current legislative session, lawmakers are still struggling to find common ground on how to invest in schools and other key priorities. It’s essential that legislators take a bold, equitable path to fund our state’s most important investments and to bring greater balance to our tax code. The Budget & Policy Center has developed a plan that would do just that. This plan, called Accountable Washington, includes a package of reforms that would infuse $2 billion annually into our communities in the coming years, while significantly reducing taxes for Washington households with middle and low incomes. Additional details of the plan are available in this fact sheet.
As the chart below shows, taxes would decline by an average of 5.1 percent among the households with annual incomes that fall in the bottom fifth of Washingtonians. Households in the middle of the income scale would see their taxes decrease by 0.6 percent. By contrast, the richest 1 percent would see their taxes rise by 2.1 percent of annual income – a small price to pay for heightened investments in our communities.
Click on the graphic below to see an enlarged version.
Given the urgent need to fund state Supreme Court-mandated improvements to schools across the state, all of Washington’s children would be an important beneficiary of Accountable Washington. Further, this plan would ensure that lawmakers can fully funds schools while also keeping up investments in other programs that serve Washingtonians – such as responsive emergency services, clean water, food for kids who are hungry, and job supports for working parents.
While looking to enact solutions to ensure we have adequate state investments, lawmakers should also be mindful not to raise new revenue on the backs of low- and middle-income households. These households already pay up to seven times more in state and local taxes as a share of their incomes than people at the top of the income scale.
Accountable Washington would begin to clean up and rebalance our inequitable tax code in a way that raises billions of dollars in much-needed new resources. Here’s what it would do:
- Enact smart, equitable reforms to the property tax, including eliminating an indiscriminate restriction on property tax revenue and offering in its place a new, targeted property tax rebate, which we call the safeguard rebate, for families earning $75,000 or less. Property taxes are the most significant source of funding for schools, and both state and local property taxes are at the center of the school funding debate. Under Accountable Washington, lawmakers can make the property tax code more sustainable and more equitable by raising the state property tax rate by $1.54 per $1,000 of assessed value and enacting a safeguard rebate to offset these increases for households with low and middle incomes.
- Rebalance the tax code by enacting an excise tax on capital gains at a rate of 9.9 percent on profits from the sale of stocks, bonds, and other financial assets of more than $25,000 (or $50,000 for couples). Washington is giving away a $2.8 billion capital gains tax break to the wealthiest Washingtonians. While 41 other states have this common-sense tax, Washington gives the wealthy a break on huge profits they receive simply from moving their wealth around. Almost 90 percent of this capital gains tax would be collected from the richest 1 percent of Washingtonians. Gains from the sale of a primary home, retirement accounts, college savings plans, and other common investments would be excluded from the tax.
- Lift up working families by funding the Working Families Tax Rebate (WFTR). Based on the federal Earned Income Tax Credit (EITC), this rebate is a smart fiscal policy to help struggling families make ends meet. The EITC is one of the most powerful federal anti-poverty tools on the books. Including the WFTR in the Accountable Washington proposal keeps taxes from taking too big a bite out of family budgets for the lowest-income Washingtonians.
- Clean out 21 wasteful tax breaks that divert money out of classrooms and into the hands of special interests. To be clear, not all of Washington’s 700 tax breaks are bad policy, but many are outdated and no longer serve their original purpose. And others are simply giveaways to the powerful interests that finagled them into the tax code in the first place. Everybody benefits from excellent schools, clean air and water, safe roads, and accessible health care, so everybody should pitch in and pay their share.
Our lawmakers have an historic opportunity to make some long-awaited repairs to our broken tax code, not only to provide a world-class education for Washington’s 1.6 million kids, but also to serve their parents, their teachers, their neighbors, and their entire communities. We believe they can do that through Accountable Washington.
Check out this fact sheet on the proposal for more details.
Inslee’s bold proposal would boost investments in schools by $3.9 billion in the coming 2017-2019 state budget. This proposal makes the right choice: to prioritize investing in Washington’s children now in order to strengthen our state’s communities and economy in the future.
Investing in Great Schools
With regard to K-12 public schools, the proposal would not only finish the job on McCleary, but it would also make additional investments in creating world-class schools. For example, his plan aims to:
- Invest in educators ($2.7 billion): The governor’s budget includes funding to provide competitive wages to recruit and retain teachers, administrators, and classified staff – which is the most significant item that remains to be funded under McCleary. The plan will bring beginning teacher and staff pay up over the next two school years. It creates a new salary allocation model that will compensate teachers and staff not just for years of experience and degrees earned, but also for meeting professional development goals. The budget also seeks to provide teachers with opportunities for training, mentoring, and career advancement as well as with improved health benefits. Further, it will invest in training opportunities to recruit more teachers who represent communities that are often underrepresented, in particular bilingual teachers.
- Close the opportunity gap ($867 million): The governor’s proposal would take steps to ensure all kids have equal opportunities to thrive, including nearly half a billion dollars to staff new, smaller kindergarten through third-grade classrooms. Plus it includes targeted investments in social and emotional health supports for students, a learning assistance program that helps struggling students from families with low incomes, and individualized support for foster care youth.
Making Progress Toward Cleaning Up the Tax Code
To generate the additional resources needed to build a brighter future for all Washingtonians, Inslee proposes important steps toward cleaning up and rebalancing the state’s upside-down tax code – a tax code in which the people with the lowest incomes pay seven times more in taxes as a share of personal income than the richest 1 percent. These steps include:
- Enacting a tax on high-end capital gains ($821 million): Capital gains, which are profits from the sale of corporate stocks and bonds and other financial assets, would be subject to a 7.9 percent tax. The first $25,000 ($50,000 for a married couple) in capital gains would be exempt from taxation. As we’ve written about extensively, capital gains are more heavily concentrated among the very richest households – which means the tax would almost exclusively affect only the richest 2 percent of Washingtonians.
- Eliminating six wasteful tax breaks ($320 million): The proposal would eliminate a sales tax exemption for cars valued at more than $10,000 when traded in to a dealership. (Only the portion valued at more than $10,000 would be subject to the tax.) A Real Estate Excise Tax exemption claimed by banks on properties sold at foreclosure would be eliminated. The sales tax would be extended to purchases of bottled water. (Bottled water sold to people who do not have access to potable water would remain exempt.) A sales tax exemption claimed by Oregonians and residents of other states or countries with low (or no) sales tax would be converted to a refund program in which individuals would have to apply for the exemption. A sales tax exemption claimed by oil refineries on fuel used to power their operations would be repealed. The business and occupation (B&O) tax would be applied to certain out-of-state retailers that avoid collecting sales taxes by exploiting a loophole in federal law.
- Resetting business tax rates on personal and professional services ($2.3 billion): In the mid-1990s, personal and professional services – such as cosmetic services, financial advice, music instruction, attorney services, and business consulting – were subject to a B&O tax rate of 2.5 percent. Policymakers have since reduced the rate to 1.5 percent, although it was briefly boosted to 1.8 percent during the Recession. Inslee would restore the rate to 2.5 percent, but would expand a tax credit for small businesses and raise the minimum amount of business income required to file B&O taxes to $100,000 per year.
- Enacting a new tax on carbon pollution ($1.1 billion): Carbon emissions – the major cause of global warming – from fossil fuel distributors and refineries, power companies, and energy intensive manufacturers would be subject to a new $25 per ton tax. About half of the revenue would be dedicated to schools; the other half would go to investments in clean energy, water infrastructure, transportation, and efforts to reduce costs to businesses and households with lower incomes.
- Reducing property taxes for three-fourths of households and businesses statewide: About $250 million of the additional state tax resources from other parts of the governor’s proposal would be used to reduce local school district property taxes. Under the plan, residents living in 119 school districts (those with significant local property tax levies) would see their property taxes reduced. Even with these reductions, all school districts would receive significant overall increases in education funding.
What Else Needs to Be Done
While Inslee’s revenue reforms would make a dramatic step toward a better future for all Washingtonians, the governor and policymakers should also consider the following reforms to make even greater progress toward a more fair and sustainable state tax code:
- Create a more equitable and adequate property tax system: A law that arbitrarily restricts property tax revenue growth to 1 percent per year must be eliminated. In the current year, the result of this law is that more than $1.6 billion in resources that would otherwise be used to fund schools is being left on the table. The governor and policymakers should also consider a long overdue increase in the state property tax levy paired with new rebates to offset costs for middle- and lower-income homeowners and renters.
- Fund the Working Families Tax Rebate (WFTR): Fully funding the WFTR, a Washington state version of the federal Earned Income Tax Credit, would reduce taxes for more than 400,000 hardworking families in Washington state. Doing so would also help alleviate the higher fuel and energy bills these households would experience under the proposed carbon tax.
- Apply a higher rate to the capital gains tax: Given the many investments needed to create a just and prosperous state, policymakers should consider generating more resources from the capital gains tax. Applying a rate of 9.9 percent – the highest rate applied to capital gains in Oregon – or higher would generate hundreds of millions of dollars in additional resources for schools and other priorities.
We applaud the governor’s investments toward creating excellent schools that benefit our kids and thereby strengthen the future of our state for all of us. This proposal makes the kind of investments necessary to ensure that our kids are taught by qualified and engaged educators and that kids who need the most help have access to supports in and out of the classroom. The plan also prioritizes thriving communities by cleaning up the tax code and getting rid of wasteful tax breaks. When we invest in the foundations that benefit us all, we can help to create a better Washington.
Stay tuned for additional analysis about how the governor’s budget proposal as a whole would impact our communities.
Nearly 25 community and faith leaders, service providers, individuals, and advocates have registered their support for full funding of the Working Families Tax Rebate (WFTR), an important tool that would boost the incomes of nearly 1.4 million Washingtonians, including 624,000 children.
In a letter to House budget writers, supporters outline the ways the WFTR is a great complement to a wide array of policies and an important tool to:
• Reduce taxes for 400,000 hardworking households: Washington state has the most upside-down tax system in the nation. People with low incomes pay seven times more taxes as a share of income than the richest 1 percent. Funding the WFTR would reduce taxes for over 400,000 hardworking households in Washington state.
• Improve the equity of our tax system: The WFTR would help to offset the regressivity of the state sales tax and is an essential component of any revenue system. It would be an especially useful tool to mitigate the impact of an increase in the gas tax or ensure communities with low incomes are not disproportionately affected by a carbon-pricing program – two revenue options currently being considered by the Legislature.
• Keep children and families out of poverty: Washington state is one of three states where poverty is increasing. In 2011, the federal EITC kept more than 116,000 children and families out of poverty in Washington state and is the most effective anti-poverty tool we have for kids and families. Funding the WFTR could build on these benefits.
• Help families transition to a low-carbon economy: Transitioning to a low-carbon economy is essential for the future well-being of all Washingtonians, but the effects of this transition will not be felt equally. Communities with lower incomes – a disproportionate number of whom are people of color – are the first and worst hit by both the health and economic effects of carbon pollution. They are also the least equipped to adapt to the negative impacts of climate disruption. Fully funding the WFTR would ensure that in our efforts to confront climate change, we are also creating an inclusive 21st century economy.
• Help families meet needs while boosting local economies: Studies show that every dollar in EITC results in $1.50 in local economic activity as recipients tend to spend the funds on immediate needs such as home and car repairs, clothing for children, appliances, and catching up on past-due bills. Funding the WFTR would add $100 million to local economies.
Our policy analyst, Elena Hernandez, testified yesterday before the House Appropriations Committee in support of the Carbon Accountability Act (HB 1314). This act would put a cap on carbon pollution and require polluters to purchase carbon allowances (permits), catalyzing an economic shift toward a low-carbon economy while generating over $1 billion in new revenue for Washington state. Elena's testimony focused specifically on the Working Families Tax Rebate (WFTR), one of several investments included in the carbon bill that would help communities with lower incomes.
Transitioning to a low-carbon economy is essential for the future well-being of all Washingtonians, but the effects of this transition will not be felt equally. Communities with lower incomes – a disproportionate number of whom are people of color – are the first and worst hit by both the health and economic effects of carbon pollution. They are also the least equipped to adapt to the low-carbon economy of the future. Fully funding the Working Families Tax Rebate is a step toward ensuring that in our efforts to confront climate change, we are also creating an inclusive 21st century economy.
The WFTR is Washington state's version of the federal Earned Income Tax Credit (EITC). The benefits of the federal EITC cut across a wide array of issues, from improving equity in the tax system to reducing poverty to improving educational outcomes for kids. Policymakers can supplement the benefits of the federal EITC by funding the WFTR – which was passed in 2008, but never funded. Twenty-four states across the nation have already taken this step.
To learn more about the Working Families Tax Rebate and its benefits, read our newly updated primer. To see how much a qualifying family can receive, take a look at the calculator below:
The importance of funding the Working Families Tax Rebate (WFTR), a Washington state version of the Federal Earned Income Tax Credit (EITC), should not be overlooked. As one of the many new investments for communities with lower incomes included in Governor Inslee’s proposals to reduce carbon pollution, the benefits of the WFTR would be widespread throughout Washington state, but would be most pronounced in rural communities and communities of color (see map below).
Going forward, it is critical that policymakers ensure all Washingtonians are able to thrive in the low-carbon economy of the future. Without investments like the WFTR, people with lower incomes will continue to shoulder growing economic and health costs associated with climate change. And, they be will not be able to afford the clean energy infrastructure needed to reduce their consumption of costly, carbon-intensive gasoline and electricity sources.
Governor Inslee proposes to fund the WFTR, which was enacted in 2008, but never funded, at 10 percent of the federal EITC. This would result in tax rebates of up to $624 per year for more than 435,000 households with lower incomes. The map below displays the number and share of households eligible to receive the WFTR, the average WFTR per household, and the total amount of WFTR and EITC dollars that would be distributed to each legislative district in Washington state (1). Click here for a printable listing by legislative district.
We support the governor’s proposal. It is a bold step toward building a healthy environment and an economy that works for all Washingtonians and a good start to a much needed conversation around climate change. As members of the state legislature examine his proposal in the coming year, legislators must consider increasing the WFTR to as much as 30 percent of the federal EITC to ensure that no is left behind as Washingtonians transition to the low-carbon economy of the future.
(1) Share of households eligible refers to share of households filing a federal tax return and claiming the EITC and therefore eligible to receive the WFTR.
Statement from Executive Director, Remy Trupin, on Governor Inslee's proposal to address carbon pollution in Washington state.
“The governor’s proposal to address carbon pollution in Washington state will ensure that those hardest hit by the impacts of a changing climate and those least equipped to adapt to climate disruption – such as communities of color, families with low and moderate incomes, and rural Washingtonians – will not be asked to bear more responsibility than the polluters.”
Two major challenges pose the biggest threat to Washington state’s ability to deliver on the promise of a better future for our kids and grandkids: climate change and income inequality. At the intersection of climate change and income inequality are the resources that everyone needs to live – clean air, adequate food, safe water, abundant land, and energy – and the ability to access to them. The consequences of climate change will dramatically affect the quality and availability of these resources; and income inequality impacts how people are protected from and adapt to those consequences.
Governor Inslee’s plan will reduce Washington state’s carbon footprint, while also ensuring that all Washingtonians can support and participate in the low carbon economy. The governor's proposal has several key elements that will get us there, including:
- Much needed investments towards low carbon transportation options and public transit, including pass discounts for riders with low incomes.
- Key investments in education that will help close the opportunity gap, from early childhood to higher education
- Funding for the Working Families Tax Rebate (WFTR) which will help to offset transportation and energy costs for over 450,000 households with low and moderate incomes in Washington state
- Strong accountability measures to ensure the voices of those most heavily impacted by climate change continue to be front and center, with the establishment of an oversight board and implementation of a statewide environmental justice “hotspots” study to better understand and address the disproportionate impact on communities with lower incomes.
In Washington state, an estimated 37,000 veteran and armed forces families with children receive the Earned Income Tax Credit (EITC) or the low-income component of the Child Tax Credit.
According to a new report released today by the Center on Budget & Policy Priorities, nationally, roughly 1.5 million military families, which include about 3 million children under age 18, received one or both of the credits. The credits make a major difference to their economic security:
- The EITC and CTC together keep more than 140,000 military families — with nearly 300,000 children and 600,000 total family members —above the poverty line, based on the federal government’s Supplemental Poverty Measure, which counts income from tax credits.
- These credits reduce the severity of poverty for about another 800,000 members of military families.
- The credits also help working families with incomes modestly above the poverty line who still struggle with basic expenses like housing, school clothes, car repairs, and groceries.
The tax credits can also increase opportunity for children in military families. Recent academic research demonstrates that EITC receipt is linked to improved performance (including better test scores) by children in school — and to increased employment and earnings when the children reach adulthood.
Only people who are working can claim the credits, which were modestly expanded in recent years so they provide more help to more families. On average the credit amounts to $1,000 per household from the low-income portion of the Child Tax Credit in 2011 and $2,650 from the EITC.
The Washington state version of the EITC is the Working Families Tax Rebate (WFTR). It was enacted in 2008, but never funded.
The Center on Budget and Policy Priorities’ full report, Working-Family Tax Credits Help Over One Million Military Families can be found here.