Our zombie tax code needs a new life

There was something grotesque but apt about the sight of zombies crawling around the state Capitol in search of a tax break last week. The zombies were, of course, people from the film trade who were playing creatures from “Z Nation,” a zombie flick filmed in Spokane.

In their attempt to draw attention to the benefits of tax breaks that lure filmmakers to the Evergreen State, the zombies provided a convenient metaphor for business as usual at the Legislature.

Every year, with zombie-like insistence, interest groups either request new tax breaks or argue their old ones are sacrosanct.

More. Tax. Breaks. Now.

Yet what’s needed is an overhaul of the tax code, which any objective assessment shows is the worst in America. By worst, we mean it is the most upside down, putting heaviest burdens on those least able to pay and lightest burdens on those most able to pay.

In its January report “Who Pays?” the national Institute on Taxation and Economic Policy once again put Washington at the top — calling our tax system the most regressive in the country. ITEP said working poor families, in effect, shoulder far more tax burden (16.8 percent of income) than is paid by the top 1 percent of income earners (2.4 percent).

This is one consequence of having no income tax, which voters have made pretty clear on a handful of occasions that they don’t want (and we’re not advocating here). We also lack a capital gains tax, which Gov. Jay Inslee has proposed for those earning more than $25,000 a year in stock dividends or other capital gains.

The consequence of Washington’s avoidance of a broader tax base is that we are left with high sales taxes, many so-called sin taxes, and unusually high taxes on cellphone services.

The national Tax Foundation noted last year that Washington now has the nation’s highest cellphone taxes — hitting an 18.6 percent rate once state and local tax rates are factored in. Add federal tariffs or fees, and the rate for a phone in Washington is 24.42 percent, edging out Nebraska for the top spot.

Washington also is loaded to the gills with sin taxes — with some of the nation’s highest taxes on cigarettes (a rate high enough it is linked to an unusually high rate of smuggling to avoid taxes). We also levy healthy taxes on alcohol and newly legal marijuana sales, and gambling. Gov. Inslee now wants to raise the tax on cigarettes and extend taxes to vaping or e-cigarettes.

Then there is the state’s distinctive business-and- occupations tax, which levies a flat rate on businesses’ gross receipts. In other words, a business is taxed on the cash that comes in the door, not profit margin. Add in the role of business in collecting sales taxes, and the business sector coughs up 54 percent of all state and local taxes paid in Washington, according to a report last year by the business-backed Washington Research Council.

All of this encourages yearly feeding frenzies at the Capitol as interest groups each try to win a special B&O tax rate or exemption. Major economic interests — what state Rep. Reuven Carlyle once called “the four golden children” of aerospace, high-tech, timber and agriculture — have done quite well under this scenario. Most businesses, like consumers saddled with high cellphone taxes, have not — even while the state’s overall tax burden keeps falling and places Washington in the bottom third of states for taxes.

The message the zombies delivered wasn’t the one they intended. They just dramatized the fact that the way our tax code is dealt with in the Legislature is an annual horror show. Olympia needs a new script. And our tax code needs an overhaul that lets the state collect ample and sustainable revenues while spreading the burden more widely and fairly.

We need to stop letting zombies run the show.

This story was originally published March 22, 2015 at 12:00 AM with the headline "Our zombie tax code needs a new life."