Gregoire calls for 1/2 cent increase in sales tax. What about eliminating tax exemptions?

Kudos to Gov Gregoire for having the guts to propose a 1/2 cent sales tax hike to help cover the expected $2 billion state revenue shortfall.  The Seattle P-I reports the governor as saying, “I can’t stomach the cuts, I can’t. I can’t cut education more.”

But the sales tax is highly regressive. Far better than raising the sales tax would be to eliminate some of the many tax exemptions that favor wealthy corporations and individuals. As David Spring writes in Time to Close Corporate Tax Loopholes to Save Jobs, “According to reports from the Washington State Department of Revenue, tax breaks for wealthy corporations have skyrocketed from $20 billion per year in 2000 to $50 billion per year in 2010.”

Spring gives this example of the inequities of Washington’s tax system:

This past year, Microsoft recorded a record profit of $20 billion dollars on record sales of $60 billion dollars. Had they paid a normal 1.5% Gross Receipts Business Tax like any other business in our State, they would have paid about $1 billion in State taxes. This entire amount could have been deducted from their federal taxes – meaning they still would have recorded nearly $20 billion in profits – the greatest profit in the history of our planet.

Likewise, Boeing is exempt from sales tax.

The Economics Opportunity Institute proposes a concrete set of revenue measures: $1 Billion in Progressive Annual Revenue: Take Back the Giveaways. The measures involve mostly elimination of tax exemptions on corporations — and they’re not targeted specifically at too-big-to-fight powerhouses like Microsoft and Boeing.

Eliminating tax exemptions would requite dealing with I-1053’s 2/3 super-majority requirement on legislators. But so would raising the sales tax by half a penny. Luckily, I-1053 is probably unconstitutional. If necessary, legislatures could put the revenue proposals before the voters in the form of a referendum.

The conservative approach to governance over the past several decades has been to slash taxes, especially on the rich, and then use the resulting deficits as an excuse for demanding cuts to government services that would benefit the middle class and the poor. Conservatives continue to call for deregulation, even though reckless deregulation was a main cause of the sub-prime crash.  (They also wasted trillions of dollars on botched wars, corruption, and privatization, but that’s another story.)

Concentration of wealth has increased dramatically over the past 30 years, largely due to the Reagan and Bush tax cuts.   Capital gains are taxed at a lower rate than earned income.  Income above $107,000 is exempt from Social Security taxes.   Tax law favors outsourcing of jobs, and public education funding gets slashed, while high tech companies like Microsoft, Google, and Amazon hire tens of thousands of foreign engineers.     Billionaires get bailouts.  The middle class gets layoffs. Tax avoidance schemes go largely unchecked. The deck is stacked in favor of the rich.  For documentation of these claims see: America’s corporate tax obscenity, Shifting Responsibility: How 50 Years of Tax Cuts Benefited the Wealthiest Americans, House GOP vote unanimously to protect Big Oil subsidies, Tax Rates for Top 400 Earners Fall as Income Soars, IRS Data,, More Evidence Wall Street pay at Near Record Levels,, The Must See Chart (This Is What Class War Looks Like), 9 Things The Rich Don’t Want You To Know About Taxes, Pay Your Taxes? These 10 Companies Didn’t, and The Solution: Close Tax Loopholes.

Moreover, Washington State has one of the most regressive tax systems in the nation, due to the lack of a state income tax.

So this isn’t a call for class war or “soaking the rich.”  It’s a call for simple fairness.

As Ellen Brown has said, there’s nothing wrong with making money. But business operates only thanks to the protections and services provided by government.  The way things are headed now, Washington State is gonna start looking a lot like Alabama, and the country as a whole is gonna look like Somalia, unless the people wise up and demand fair taxation.

Lawmakers in Olympia will act only if they are forced to act.  If they tried to eliminate corporate tax exemptions, lobbyists would swarm on them like hungry rats on garbage.

So, call your legislators and demand tax fairness. In particular, ask them to support HB 2563 today, which would impose a 5 percent excise tax on capital gains over $10,000 a year.