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FEATURING MARCO GUZMAN - Lawmakers in the state of Washington just passed a 9.9% tax on yearly incomes of more than a million dollars. The new law, which Gov. Bob Ferguson has promised to sign, would affect about 20,000 households in the state and will become the state’s first income tax. Washington is among nine states nationwide that does not tax incomes, making its reliance on sales and property taxes regressive. Currently the bottom 20% of households pay a higher percentage of their incomes in taxes compared to the wealthiest 1%. The new law is expected to earn the state nearly $4 billion a year. 

Marco Guzman is a Senior Analyst at the Institute on Taxation and Economic Policy where he provides research and analysis to help support state policymakers across the country. He spoke with Sonali Kolhatkar about the newly passed tax and what it means for Washington and other states.

ROUGH TRANSCRIPT:

Sonali Kolhatkar: So, I didn't honestly realize that Washington didn't have an income tax. Before we get into what this new tax is all about, can you give us a sense of how Washington's tax structure has been designed? I gave just a brief outline of it, but how is it that the state has managed to fund the things it needs without an income tax all these years? 

Marco Guzman: Yeah. Washington actually did have an income tax in 1932, but the state Supreme Court in 1933 quickly overturned it. They said that they qualified money as being property and said you can only tax property at a uniform rate, and the tax that had passed was a tax on graduated rates, or a graduated rate tax. And so, they quickly overturned that. 

So yeah, Washington has been without an income tax since 1933. They do have, again, sales and excise taxes that they levy. They have a business and occupations tax, which is their tax on gross receipts of business income, and then property taxes as well. 

So, they do have taxes that they do levy, but no income tax, because it was constitutionally prohibited. So, they've been kind of in a bad spot. They find themselves, as you mentioned, with a very regressive tax system that places much of the tax burden on lower and middle income households than it does folks in the top 1%.

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