We progressives make a big mistake when we insist that the only fair reform to state taxes is a personal income tax.
Bill Gates, Sr., busted the effort of the 2002 Tax Structure Study when he obsessed during legislative hearings about the virtues of the personal income tax. For one brief moment, he had the public's attention on this difficult subject. He ignored the Commission's first and best recommendation – to scrap the albatross of a B&O tax in favor of a subtraction method value added tax, and talked at length about income taxes. The public just shrugged it off as more of the same, and a great opportunity was lost. (Our "Basic Reform to the B&O Tax" accomplishes the intent of that recommendation, by the way, without all the folderol of scrapping one form and starting up a new one.)
Yes, a personal income tax is a fairer tax, and would be preferred absent the obvious political realities – and absent the tax structure realities facing the average taxpayer. The taxpayer is already faced with a personal income tax from the feds, and a payroll tax that is being operated as an adjunct to the income tax. She may be forgiven for not wanting another deduction on the pay stub.
I remember sitting in a House Finance Committee in Olympia and listening to Rev. John Boonstra of the Association of Washington Churches and the Tax Fairness Coalition. He gave impassioned testimony about how voters would respond responsibly if only they were given the straight scoop about the progressive advantages of an income tax. I thought it was a noble naivety, a feeling similar to the one from listening to Bill Gates.
Then the same feeling came over me the other night as I listened to the firefighters' local president Pat McElligott insist that voters would support new property taxes once they understood what they were getting for their money. Pat probably had the best case, but none of the three appreciated the difficulty of talking about taxes to the average citizen.
First, the word "tax" has been given the connotation of leprosy or incest in a targeted effort by the Radical Right to reduce the size and scope of government. Realizing that public programs like Social Security and schools have wide public support, the Right has chosen to focus on the financing mechanism – taxes. And they have largely been successful. People who would laugh if you told them they could have a house without a mortgage now sincerely think they should have public services without paying taxes.
Second, there is a cacophony of talk the average citizen has to sort through in dealing with taxes, and very little of it is economically informed. I watched a video produced by a city government with real citizens talking about where their tax money goes, how they didn't realize where it goes, and how they were happier when they realized it goes for this or that. Taxes don't "go" anywhere. They stay right in the community. More than eighty percent of your tax money goes to pay the salary of a fellow citizen. Match that with where your money goes at the gas station or the mall. This is an important thing to understand. If small business were not enthralled with fairy tale capitalism, they would understand that government not only provides services they need, but keeps market demand in the neighborhood.
Lastly, though, we need to see the tax structure from the taxpayer's point of view, not from the government's point of view. Instead of talking down to them, we need to get behind them and see things as they see them. State tax reform, as I said, often gets stuck on an income tax as if it were balanced. It is balanced from the perspective of state government, but not from the standpoint of the one who writes the checks. Voters distrust anything new in the realm of taxation, so when they don't see balance where it is advertised, they don't stop to listen to the rest of the pitch. Real balance would come with a turn to business taxes, broad-based, equitable business taxes founded on ability to pay.
Reforming the B&O in a way that generates revenue and ends the free ride of the big corporations will look good taxpayers (he said, with charming naivety).