Rep. Reykdal: New income tax proposal on way

State Rep. Chris Reykdal and Sen. David Frockt are proposing a 1 percent state tax on corporate and personal incomes, while killing off the state business-occupations tax and reducing the state sales tax.

The bill language is still being finalized, but Reykdal, a Tumwater Democrat, said he hopes to gather signatures as soon as Monday for his House version of the bill.

“Whether you are a conservative or progressive, no matter what size you want government to be, we don’t have a tax structure to support government through time …” Reykdal said in an interview. His plan would net about $500 million in new taxes that he would devote to higher education, while using most of the new proceeds to kill off taxes that land hardest on struggling businesses or the poor.

Reykdal, a second-year lawmaker, campaigned in 2010 on a platform of a fairer tax system. He said Washington’s tax collections are a “shrinking share of economic activity. We are still taxing consumption but everything else has moved in the economy. We have gone from goods to services, from distributed wealth and consumption, to concentrated wealth. … Our tax code hasn’t moved (forward) with it.’’

Voters rejected an income tax on high earners’ incomes above $250,000 a year in 2010. But it didn’t offer big relief to businesses, and many chafed at the income tax proposal.

Don Brunell, president of the Association of Washington Business, said his group would need to take a look at the new idea of ending the B&O tax. The plan is for a flat 1 percent income tax without deductions.

“I give them credit for thinking outside the box,” Brunell said when told of Reykdal and Frockt’s plan. “I think we’d have to look at the numbers. They’d have a hard sell. The thing is, people may hate the B&O tax, but they may hate the replacement more.’’

Reykdal said House Democratic leaders have been briefed and “they embrace the dialogue (but have) no position on this proposal.”

Legislative leaders from the House and Senate caucuses said in an Associated Press forum this morning they are focused on a short-term budget solution, not a tax system overhaul.

Gov. Chris Gregoire has proposed asking voters to approve a temporary half-cent sales tax in the spring to raise about $500 million, and the Democrat says she would not want to see the ballot question made more complicated.

“What we propose is the single most comprehensive overhaul of our tax system in the state’s history, but more importantly, what we propose is common sense,” Reykdal said in a prepared statement. “I look forward to working with legislators on both sides of the aisle on this foundational issue.”

According to an outline of the plan from Reykdal, it would produce $500 million more than today – including collections of $3.3 billion a year in income taxes and $1.6 billion by broadening the sales tax to professional and personal services such as accounting and legal work.

But he and Frockt would eliminate $3.1 billion in business-and-occupation, or B&O, taxes and reduce sales tax reductions by $1.5 billion by reducing the state rate to 5 percent from 6.5 percent.

The lawmakers would dedicate half of the new money to a waiver of tuition for students in their first year at community colleges or in apprenticeships, for two quarters at regional state universities, and one quarter at the University of Washington and Washington State University.

The other half would go to State Need Grants for low- and middle-income students.