Jay Inslee and his fellow Democrats claim that Washington State’s status as the most tax regressive state in the nation justifies their push for a capital gains tax—a tax our green governor proposed without seeking information as of its full economic implications. Inslee made this claim during his State of the State address on Tuesday and in various interviews since. Democrats in the state Legislature have followed Inslee’s lead, calling for a more “fair” tax system. And, the Washington Democrat Party’s latest fundraising email doubles down on the claim that our state has the “most unfair tax system in the country.”
Inslee and his fellow Democrats pull the assertion that our state has the most regressive tax system in the nation from a recent report issued by the left leaning Institute On Taxation & Economic Policy (ITEP). The report claims to “assess the fairness of state and local tax systems by measuring the state and local taxes that will be paid in 2015 by different income groups as a share of their incomes.” Due to our reliance on a sales tax and lack of an income tax, ITEP pointed to Washington State as the most regressive state in the nation.
Well, as it turns out, an analysis of the report found critical flaws. The Tax Foundation points out that ITEP’s report omits consideration of the fact that “several states depend on gross receipts taxes, modified gross receipts taxes, and business license taxes.” The Tax Foundation,
These omissions are related to why Washington State is shown as the most regressive state in the nation. The Census Bureau, the main data source for state and local tax researchers, inaccurately classifies Washington’s gross receipts tax on businesses as a sales tax. This makes Washington’s sales tax collections look much higher than they actually are and thus makes ITEP allocate more taxes than it should to lower income groups in Washington. (Note that this classification of Washington’s gross receipts tax was confirmed via direct email correspondence with the Census Bureau.)
Here’s hoping Inslee and Democrats stop using a flawed study as the basis of their argument for a capital gains tax—unfortunately, we are quite sure they’ll keep right on claiming Washington State is the most tax regressive in the nation. Simply put, the flawed study is the only shred of an argument they have to support their tax agenda.