Income tax proposal offers sales-tax cut

It didn't take long to fire up voters on both sides of the income tax issue today. Critics and supporters of a high-earners tax showed up in double-digit numbers, despite Senate Majority Leader Lisa Brown's short-notice announcement of the proposal on her blog.

Proposed Substitute Senate Bill 6250 would require a statewide public vote in November, asking whether residents preferred the high-earners tax or to continue with a temporary 0.3-cent increase in the sales tax that Senate Democrats have proposed to plug part of the $2.8 billion budget gap.

In a nutshell, PSSB 6250 imposes a 4.5 percent tax on income — affecting only the share of an individual’s income above $200,000, above $300,000 for a head of household, and above $400,000 for a married couple.

The income tax would not take effect until 2011 and, important to some, it would cut the state share of the sales tax from 6.5 cents per taxable dollar to 5.5 cents. It also would give tax credits to businesses that pay a business-occupations tax based on gross receipts.

It appears the measure would raise some revenue, but no definitive fiscal impact was available Thursday for the Legislature. Despite that, a legislative staffer told the Ways and Means Committee it is estimated to raise about $1.46 billion in its first year, while reducing sales tax revenues by about $1.143 billion. The value of the tax credits was not available.

If those numbers hold true, the bill looks revenue neutral and geared to changing the burden of tax — not raising taxes.

The bill drew heated comment on both sides in the hearing, and The Associated Press wrote a story about it, which we're running it in the Friday morning paper. To watch or hear it all raw on TVW, click here.

Meanwhile, Sen. Margarita Prentice, the chair of the Senate Ways and Means Committee, did not say when she plans a committee vote on the bill — or if there will be one. But she did not rule out action on the measure this year as Democrats wrangle to find a revenue package that their majority can agree upon.

Senate and House Democrats are both very stuck in their deliberations over tax plans. Thursday is the final scheduled day of session, and lawmakers are running out of time.

Republicans appeared stunned by the quick move, and Senate Republican Leader Mike Hewitt said his caucus got no warning the bill might get a hearing until members read about it on Brown's blog.

"Let's get a button made," Hewitt said. "ABR … Anything But Reform." That's his view of Democrats' actions on government spending.

Sen. Rosa Franklin, D-Tacoma, was the original sponsor of SB 6250, and she also was surprised to learn she would get a hearing. In an interview, Franklin said she was happy to be surprised — if it meant the state’s notorious tax system, which is considered the most burdensome on the poor of any in the country, could be made fairer.

She later told the committee: "It puts tax decisions in the hands of the people of the state of Washington. It lets the people who pay the taxes decide the best way to pay for public services. … It is time that we begin to restructure an outdated system that does not fit in 21st century Washington."