John Burbank, EOI Executive Director

If you lived in a run-down house and all of a sudden your family got a lot of money, what would you do? Most people would think about fixing up the rickety front steps, replacing the leaky shower, and painting the back bedroom, for starters.

But what if that new money came in the form of a lottery ticket you purchased for your son as a present — and he decided to spend the winnings on a new hot tub (conveniently located right outside his bedroom) and a trip to Europe? So much for those rickety steps! Now you’re stuck with a higher electricity bill thanks to the hot tub. Your family’s income increased, but your quality of life hasn’t gone up one iota — and the house is still falling apart!

Something like that is happening right now in Washington. Collectively, we’re wealthier — but our quality of life isn’t much better. In 2011, total income increased $13 billion — an increase of more than 5 percent. I bet your paycheck didn’t go up 5 percent, but it’s likely many of your expenses did.

Take college tuition. If your kid is at Everett Community College or the UW, you are paying a lot more this year than last year. And you will be paying even more next year. Tuition at Everett will go up 13 percent, approaching $4,000. At UW a 16 percent tuition increase will result in tuition and mandatory fees exceeding $12,000.

What about health care? Employers are rolling back coverage — now only a little more than half of them offer coverage to full-time employees. And to fund that coverage, employee contributions have tripled in the last decade, with average co-pays, co-insurance, and out-of-pocket costs exceeding $4,000 a year.

In other words, the citizens of this state are living in a house that is getting more run-down with each passing year. It’s time to renovate. We need public investments to make higher education affordable to average families again, to reduce K-12 class sizes so our kids can get the attention they need, to fund basic health coverage for people whose employers can’t or won’t, and to rebuild the our roads, trains, and waterways — just to name a few.

How do we do that, when millions of state residents are taking home smaller paychecks this year than last? The answer is easy to say and hard to do: It’s time for the son with the hot tub to contribute. He may say he already did — but the fact is, his trip to Europe helped the German economy a lot more than our own.

So who are Washington’s lucky children? They are the state’s corporate leaders and the corporations they direct — fortunate enough to be born into a civil society governed by laws and regulations that protect private property, and into a place where taxpayer dollars spent on public schools and universities, police and firefighters, roads and bridges make it possible for businesses to succeed.

Corporate leaders go to bed knowing that when they wake up in the morning, their corporations and their wealth will still be there. For that degree of opportunity and security, you might think these leaders would be eager to provide the tax revenues necessary for their own and others’ well-being. But instead, they use their wealth and power to lobby for tax exemptions whenever possible, and use every wrinkle in the book to avoid paying them.

Here’s just one example: Every time Microsoft sells software through its Reno office, it reduces revenue that should go to public education in our state. That accounting maneuver increases profits, which increase its dividends, which increase the wealth of its shareholders – and beggars public education and public health.

It is not as if our corporate leaders haven’t benefitted personally from public services. Howard Schultz grew up in public housing. Paul Allen and Bill Gates got the computer bug at the University of Washington — our flagship public research university, funded by state tax revenue. Jeff Bezos graduated from Miami Palmetto Senior High School and participated in a special student science program at the University of Florida. All of this was possible thanks to taxpayers.

But like a kid who wins the lottery, their sense of responsibility doesn’t seem to extend to their fellow citizens — the other people living with them in the family house we call Washington. They seem more intent on reducing their taxes and those of their corporations rather than contributing enough to actual rebuild the front steps and repaint the siding. Meanwhile, we’re still paying for those frothy bubbles in the hot tub.

From the Everett Herald

Poll: Small Business Owners Say Big Businesses, Millionaires Not Paying Fair Share of Taxes

The National Federation of Independent Businesses calls itself the “voice of small business” as it argues against closing corporate tax loopholes and against higher taxes for millionaires. That’s odd, because 75% of small business owners say it harms their business when big corporations use loopholes to avoid taxes small businesses have to pay, and 57% of small business owners support a higher tax rate for individuals earning more than $1 million.

No doubt some small business owners do support the NFIB’s positions, but it’s clear they are a pretty diverse bunch – just like the rest of America is.

(In case you’re wondering, survey respondents were politically diverse, with a majority Republican or independent-leaning Republican: 50% identified as Republican (27%) or independent-leaning Republican (23%); 32 percent as Democrat (14%) or independent-leaning Democratic (18%); and 15%as independent.)

Most states have an income tax that makes their tax system more equitable across all incomes and better ensures public revenues keep up with population and economic growth. That means other states have been able to invest in their people and public structures, while Washington has fallen behind. Washington’s rank in K-12 spending fell from 34^th to 45^th compared to state personal income from 1998 to 2009, according to the U.S. Census Bureau.

On teacherswithspine.org, here’s a trailer for a bona fide Washington State thriller (made by Sandy Cioffi and three graduates from the now-maybe-defunct, maybe-coming-back-in-some-form Seattle Central Community College film program—a possible deal may be in the works to restore it, which would be great).

By David Cay Johnston, excerpted from Reuters:

Everyone seems to know that about half of Americans paid no income taxes in 2009 and that the top 1 percent paid about 37 percent of the income taxes. But how many people know that households making less than $75,000 collectively paid more federal income tax than those making $1 million or more?

Or that income taxed at the next-to-lowest rate, 15 percent, brought in more government revenue than all capital gains taxes plus the two top brackets, which apply only to the top 2 percent of earners? Or that almost half of the top 1 percent made less than $500,000? Or that five out of six made less than $1 million?

The fact is that the government relies far more on the bottom 99 percent than the top 1 percent for federal income taxes.

(click to enlarge)

In 2009, the income entry point for being in the top 1 percent was slightly less than $344,000. To most Americans that is an unimaginable deal of money. But let’s put that in perspective.

DISPARITY AT VERY TOP

The median income taxpayer — half made more, half less — made slightly less than $33,000 that year (and their average adjusted gross income was under $15,300, or less than $300 per week). The median income taxpayer would need 10.6 years to earn as much as someone at the low end of the top 1 percent.

Far greater disparities exist within the top 1 percent.

The top 1 percent includes people who made many hundreds of millions of dollars and perhaps some with incomes of more than $1 billion, official government data will show when it is released in two years.

Economically, those just entering the top 1 percent have nothing in common with those in the top tenth of the top 1 percent. Someone at the entry point for the top 1 percent would need 29 years to make $10 million, and more than 2,900 years to make $1 billion.

The point is that while all those in the top 1 percent are certainly well off, the vast majority still go to work every day.

Almost half of the top 1 percent, or 1.4 million taxpayers, make $344,000 to $500,000. More than 1.1 million make $999,999 or less.

The bottom half of the top 1 percent rely on salaries for about two-thirds of their income. They get modest income from capital but rely mostly on their labor, giving them more in common with Joe Sixpack than Warren Buffett.

ONE IN A THOUSAND

A much better measure than the top 1 percent would be the top tenth of 1 percent. The government does not break out this group, but Emmanuel Saez, a University of California economist, and others have.

The Saez analysis of tax return data shows that through 2008, the top one-in-a-thousand taxpayers had average income in recent years that ranged between $5.2 million and $7.5 million annually. Just investing that much in corporate bonds will produce enough interest income to keep someone in the top 1 percent.

Furthermore, inside the top 1 percent, those with the highest incomes pay the lowest tax rates.

The top 1 percent paid an average income tax rate of 24 percent in 2009, IRS data shows. That is almost exactly the rate paid by those making $500,000 to $1 million. Those who made $1 million to $10 million paid a higher rate, 26 percent. But those making more than $10 million paid a significantly lower rate, 23.3 percent.

The top 400 taxpayers paid a much lower rate. On an average income of $270 million each, their effective federal income tax rate was 18.1 percent in 2008, the latest year for which we have IRS data. A single worker earning less than $90,000 pays a higher rate than that.

In a country with more than 300 million people, 400 taxpayers is a minute number. Yet those 400 made 1.3 cents out of every dollar of the country’s total adjusted gross income, almost doubling their share of national income since 2002.

CONCLUSION

The U.S. tax debate tends to focus on the top 1 percent — their share of income taxes and their tax rates. Anti-tax groups encourage this focus, now embraced by the Occupy demonstrators on Wall Street and across America. Problem is, the top 1 percent is a very misleading measure of who pays federal income taxes. It mixes doctors and billionaires, masking the taxes paid by the middle class and the affluent.

Continuing to focus on the top 1 percent will mislead us about who pays federal income taxes. That focus should be on the middle class and the upper middle class, and then on the top tenth of 1 percent. And on whether our tax system is helping create wealth and jobs or destroying them.

(Editing by Kevin Drawbaugh)

Revenues to Rebuild Washington's Economy

Washington legislators will convene a special session this fall to respond to a $1.4 billion drop in the state’s expected revenue for 2011-13, brought on by high unemployment and the lingering recession.

State lawmakers have already slashed billions of dollars from the state operating budget since 2008, crippling individuals, schools, and communities in every part of the state. Meanwhile, tax breaks for the wealthiest people and corporations undercut investments in the education system and infrastructure needed to create jobs and get our economy moving again.

It’s time to modernize Washington tax code by ending tax breaks and expanding the tax base to reflect Washington’s 21st century economy. Here are some options to do that.

John Burbank, Executive Director

Reprinted from The Everett Herald

It isn’t any surprise that people are pessimistic and negative right now. If we have jobs, we are worried about keeping them. If we don’t, we are worried about making ends meet, especially as unemployment insurance has run out for tens of thousands of jobless workers in our state.

We see the stock market lose billions, then gain billions, then lose billions again in the space of several hours. Tuition has broken the $10,000 barrier at the University of Washington, and $3,500 at Everett Community College. More and more people are working without health insurance, while the state has steadily defunded basic health coverage. Class sizes are increasing, actual courses are decreasing, and physical education and arts and music are left shriveling on the vine of wilted revenues.

But we are not all in this boat together. We are not all sharing the doubt, fear and suffering. The corporate elites of Boeing and Microsoft and Amazon and Starbucks are doing just fine. The largest businesses in the United States are enjoying record profits. Paul Allen has his islands and submarines. Jeff Bezos can fund his Bezos Family Foundation, which focuses on education and young people, while defunding public education across the country by threatening to leave any state that tries to collect sales taxes on Amazon sales.

After Sept. 11, 2001, we as a people had a moment of solidarity with each other and with our country. We were ready to answer the call to protect our country, to build our democratic society and to realize the greater good. We collectively blew up that moment of patriotism by answering George W. Bush’s call to go shopping.

We allowed that president to lead us down a road of lies and into wars which the current president still hasn’t gotten us out of. Instead of funding our schools, our roads, our health coverage, and yes, our wars, we gave Bush a pass to cut taxes again and again, especially on the wealthy.

The current president, despite all he says, is continuing that tradition. Instead of workers’ wages keeping up with productivity increases, or at least inflation, we have allowed them to fall behind, while increasing workers’ payments for health care, retirement accounts, and their kids’ higher education. Instead of acknowledging Social Security as the backbone of retirement income, especially with the cratering of 401(k) accounts and the extinction of defined benefit accounts, we allow ourselves to be deluded into undermining Social Security as well. Instead of realizing what the current President promised as universal health care, more and more Americans have no health insurance and our elected leaders appear willing to make us wait until we are 67 years old to get Medicare.

We are not a stronger or better country now than 10 years ago. The multinational corporations that are based in America, like Boeing, Microsoft and GE, are stronger and wealthier. But we aren’t. We are a divided and fearful nation. So maybe we should look north, across the border, for inspiration.

The second largest political party in Canada is the New Democratic Party (NDP). It is largely supported by workers and unions. This party made universal health coverage a reality in Canada. It has ensured affordable higher education. Thanks to the NDP, all workers can balance work and family with family leave insurance. For the NDP, family values are not just rhetoric — they are part of the fabric of life and law in Canada.

Three weeks ago, Jack Layton, the leader of the NDP, lost his fight with cancer. Layton wrote a letter to his fellow Canadians just two days before he died. He signed off with this salute: “My friends, love is better than anger. Hope is better than fear. Optimism is better than despair. So let us be loving, hopeful and optimistic. And we’ll change the world.”

That is something for all of us to consider, whether we live north of the border, or in these United States. We can reclaim the spirit and solidarity of Sept. 12, 2001. But we won’t do it by undermining our own government and the public services it provides. That was the agenda of greed and you-are-on-your-own enabled by the attacks of Sept. 11, 2001.

If we want a future of opportunity and security for our children, we must put what is best for all of us first. It is not me, it is us.

[CORRECTION: The original version of this column incorrectly stated that Jeff Bezos funds an environmental camp on Bainbridge Island. That camp is actually funded by Paul Brainerd.]

Attacks on sorely-needed increases in state tax revenues often include the unproven claim that tax hikes will drive large numbers of households — particularly the most affluent — to other states. The same claim also is used to justify new tax cuts. Compelling evidence shows that this claim is false.

The effects of tax increases on migration are, at most, small — so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue.

The basic facts, as this report explains, are as follows:

• Migration that’s occurring is much more likely to be driven by cheaper housing than by lower taxes. A family might be able to cut its taxes by a few percentage points by moving from one state to another, but housing costs are far more variable. The difference between housing costs in two different states is often many times greater than the difference in taxes. So what might look like migration in search of lower taxes is really often migration for cheaper housing.
• Consider Florida, often claimed as a state that attracts households because of its low taxes. In the latter half of the 2000s, the previously rapid influx of U.S. migrants into Florida slowed and then reversed — Florida actually started losing population. The state enacted no tax policy change that can explain this reversal. What did change was housing prices.
• Recent research shows income tax increases cause little or no interstate migration. Perhaps the most carefully designed study to date on this issue concerned the potential migration impact of New Jersey’s 2004 tax increase on filers with incomes exceeding $500,000. It found that while the net out-migration rate of this income group accelerated after the tax increase went into effect, so did the net out-migration rate of filers with incomes between $200,000 and $500,000, and by virtually the same amount.
• Low taxes can prevent a state from maintaining the kinds of high-quality public services that potential migrants value. Studies show that such amenities as cultural facilities, recreational opportunities, and good public services are powerful attractions for potential migrants. Many of those services are financed with tax dollars. Therefore, while low taxes decrease the cost of living, they might also prevent states from preserving or improving valued public services, which would discourage potential migrants.

Thus, while a few affluent households might leave a state because their income taxes are increased, the vast majority stay, and states gain a significant net increase in revenue to help support important services.

Read more from the Center on Budget and Policy Priorities »

Click for full report

For 30 years Washington state and the U.S. as a whole have experienced a decline in the middle class. If you listen to the pundits on TV, it sounds like it was inevitable – or at least unavoidable. Nothing could be further from the truth.

The rise of the middle class in the post-WWII era wasn’t an anomaly. It was the direct result of policy choices at both the federal and state level to grow a middle class. Likewise, the current decline of the middle class is due to policy choices at the federal and state level – although the continuing effects of the Great Recession are making it worse.

In the report Under Attack: Washington’s Middle Class and the Jobs Crisis, EOI and Demos collaborated to examine the decline in middle income jobs, rising inequality, a decline in benefits that meet the basic needs of a changing workforce, and the rising cost of the American Dream, including home ownership and a college education.

This generation will likely be the first to have a lower standard of living than their parents. For example: from 2001 to 2011, tuition at the University of Washington increased by between 6% – 20% per year – from $3,983 in 2001 to more than $10,500 in 2011. Washington now ranks 32nd among the states in percentage of low income students participating in post-secondary education. The top 1% now claims 35% of the nation’s wealth – nearly double that of the past 3 decades – while overall wealth has declined for the bottom 90%.

The growth of the middle class in the 20th century was reinforced by high levels of public investment in infrastructure and education – and everybody, including the wealthy, paid their fair share. Today, wealthy individuals and corporations are paying the lowest tax rates in nearly a century – and state and federal policy choices seem focused on slashing educational opportunity, health and basic services, instead of investing in American infrastructure and talent to bring us out of the recession,

The obsession with the federal deficit is threatening to be the coup de grâce to the American dream. The American people and the people of Washington state deserve better choices.

John Burbank, Executive Director

Two weeks ago, Gov. Chris Gregoire convened a press conference with corporate leaders from Microsoft and Boeing. They were celebrating a breakthrough in higher education.

It was a breakthrough, all right — like 60,000 high school graduates walking out onto thin ice and breaking through. The troika offered a life ring for 1,000, through “Opportunity Scholarships.” The other 59,000? Let them swim … or sink.

Let’s consider what really happened to public higher education this year. The Legislature cut out almost a fifth of funding for higher education: $617.5 million. It raised tuition at the University of Washington by 35 percent in two years, and by 25 percent at community colleges.

Boeing and Microsoft? Gregoire was praising them because they committed $5 million a year each, totaling 1.62 percent of the shortfall. That contribution wasn’t free — the state, that is the taxpayers, had to make a down payment of $5 million, moving money out of public services and into a corporate-controlled nonprofit. And our state will have to do that year in and year out in order to get the corporate crumbs.

It shouldn’t be a surprise that the Legislature did not touch these companies’ tax loopholes. Each year Microsoft gets to keep at least $26 million in sales tax deferrals and exemptions and business tax credits. That money should go to fund public education. Instead, it pads Microsoft’s profits, which stood at $19 billion last year. Microsoft’s $5 million contribution — three one-hundredths of a percent of its profit — is the equivalent of earning $50,000 and giving away $15.

If Microsoft was really interested in our state’s students, the company would stop hiding its revenue by claiming its software sales are conducted in a license and operations office in Reno, Nev. This little sleight of hand has enabled the company to avoid paying more than $750 million in state taxes over the past decade and a half. Now Microsoft is pushing the federal government to lower corporate taxes to 5.25 percent on money they have been stashing overseas. That is $29 billion which Microsoft has secreted away in other countries, hiding from taxation and simultaneously withholding investment from job creation and research and development that could be done in the United States.

What does Microsoft get for its $5 million contribution? A deduction from its federal taxes. The company’s insistence of the development of a whole new duplicative nonprofit administrative system, apart from the state. And the right to determine which students get the assistance, depending on their choice of courses. If students decide to focus on areas of study that Microsoft deems important, then they may get some help. If not, they won’t. Those who get assistance and do not complete the “eligible education program” (for example, if they switch from computer science to a liberal arts major, like history) may be forced to pay back their grants. Their student loan indebtedness only grows through this program. It is a mockery of opportunity.

And then there is the little problem that the UW just announced tuition increases of 20 percent. So even with this new financial aid, students next year will still have to come up with another additional $1,000 on top of this year’s tuition of $8,700 just to take classes.

Boeing’s $5 million contribution represents fifteen one-hundredths of a percent of their corporate profits. Recently the company announced that it expects to receive a net tax refund of $137 million from state and local governments for 2010. That same year, Boeing paid three-tenths of a percent in federal taxes on its pre-tax profit of $4.5 billion. They are skipping away from our state with $3 billion in tax credits over 20 years, building a new 787 facility in South Carolina. Plus they have shown the efficiency of corporate global outsourcing, with overruns on the 787 now exceeding $12 billion.

But they want to appear loyal to higher education in Washington. And that $5 million gives them good cover.

Here is a better idea for good corporate citizenship: Pay your taxes. You don’t even need to wait for the Legislature to act. You can just get out your checkbook. Microsoft and Boeing should both start with $100 million a year. That still leaves them benefitting from tax favoritism. It would give our children a bit of a tuition break, so they can actually attend classes in our public community colleges and universities.

That’s what we want, isn’t it? An educated, not a debt-ridden, workforce?