Washington Voters Reject State Income Tax Proposal

Published November 15, 2010

Washington State voters overwhelmingly rejected a measure that would have imposed the state’s first income tax, one limited to wealthy residents.

Initiative 1098 would have levied a 5 percent tax on individuals earning more than $200,000 a year or households earning more than $400,000, while cutting some property and business taxes. The rate would have been 9 percent on individual incomes greater than $500,000 and household incomes greater than $1 million.

Supporters and opponents poured more than $12 million into the campaign, roughly evenly split. Despite support from the National Education Association, Service Employees International Union, and other unions, 65 percent of voters rejected it.

Backed by Bill Gates, Sr.
Income tax advocate Bill Gates, Sr., whose son co-founded Microsoft, was the leader and public face of the pro-I-1098 campaign and spent $600,000 of his own money on it.

In what was perhaps an awkward situation for Gates, Microsoft CEO Steve Ballmer and Microsoft cofounder Paul Allen opposed the initiative. Alaska Airlines and Boeing also contributed to the defeat campaign, citing fears the tax would harm their ability to attract talent to the state.

Prior to the initiative’s defeat, economist Arthur Laffer penned an editorial in The Wall Street Journal arguing it would destroy Washington’s comparative advantage. “In one fell swoop, Washington would move from being one of the lowest-tax states in the nation to being one of the top nine highest. It’s economic suicide,” Laffer wrote.

Texas Governor’s Recruiting
Texas Governor Rick Perry (R) sent a letter to 88 of Washington’s biggest employers—including Amazon.com, Starbucks, and Microsoft—inviting them to relocate in the event of the tax’s passage. Texas—along with Alaska, Florida, South Dakota, Nevada, and Wyoming—has no state income tax.

I-1098 was one of several tax initiatives on Washington’s ballot. In addition to rejecting the income tax, voters rolled back candy, soda, and bottled water taxes, rejected a measure to raise the state’s debt limit, and re-imposed a requirement that two-thirds of legislators approve tax hikes instead of a simple majority.

Voters’ Message
Eric Lohnes, a policy analyst for the Olympia-based Evergreen Freedom Foundation, said he believes the election sent state legislators a clear message.

“Washington’s voters were not interested in fixing the state’s self-inflicted budget mess with higher taxes. In recent years they have had to do more with less, and they sent a clear message that they expect our state’s leaders to do the same,” he said.

Amber Gunn ([email protected]) is director of the economic policy center at the Evergreen Freedom Foundation in Olympia, Washington.