Dedicated funding for quality education and health care, tax cuts and job creation for the middle class

What is the purpose of I-1098?

I-1098 is a tax reform measure intended to make our tax code in Washington State more fair. It will cut taxes on middle class families while providing stable revenue dedicated to protecting education and health care priorities like K-12 class size reduction efforts and Basic Health coverage. It includes several key provisions that will free small business from onerous B&O taxes and generate thousands of jobs, cut taxes for the vast majority of Washington families, and raise needed revenue dedicated to funding education and health care:

• A 20 percent cut in the state property tax;

• Eliminates B&O taxes for more than 375,000 small businesses. exempting about 80 percent of tax-paying businesses in the state;

• Imposes a high-earners income tax on only the wealthiest 1.2% — couples with joint income of $400,000 a year ($200,000 and up for individuals)

• Requires the wealthy to pay their fair share, I-1098 will generate about $2 billion per year dedicated to a trust fund for education and health care.

Who is behind I-1098?

I-1098 was not designed by state politicians. Instead, it was put together by a coalition of respected business, labor, and community leaders like Bill Gates, Sr., who support a careful, balanced reform of our state’s tax system intended to benefit the middle class and strengthen small businesses. That is why Initiative 1098 includes tough provisions to ensure that middle class will pay less in taxes and all funds are spent efficiently and effectively, and why I-1098 has already been endorsed by the Main Street Alliance, an organization of more than 2,000 small businesses across the state.

Why do we need I-1098?

Experts across the political spectrum agree: Washington State has a tax code that harms our economy and pushes working and middle-class families to the brink, yet fails to provide the stable revenue we need to fund priorities like education and health care. Our current tax code forces businesses to pay B&O taxes even when they don’t turn a profit — making it especially hard on small businesses just starting out and in economically difficult times like these. Given that small businesses are the engines of our economy, accounting for 70 percent job growth, that translates to thousands of lost jobs at a time when unemployment is already soaring. And working and middle-class families pay far more than their fair share in taxes — a recent national study found that Washington State's tax code ranks dead last among the 50 states in basic fairness. Meanwhile, our state government faces an endless roller coaster ride of boom and bust cycles that undercuts its ability to provide the core services upon which we all rely. I-1098 will be a major step forward in creating a fairer system of taxation in Washington State.

What exactly will I-1098 fund?

While cutting taxes on small business and working and middle-class families, I-1098 will finally provide much of the funding we need to protect education and health care. The state’s budget deficit has forced devastating cuts: funds to reduce class sizes have been cut by 70 percent; more than 40,000 state residents have lost basic health coverage; thousands of seniors and disabled lost adult day health care; and state funding for child vaccinations has been eliminated. Initiative 1098 will restore funding for these and other vital services, which is particularly important given that a judge recently ruled that Washington has violated the state constitution by underfunding K-12 public education. The court has ordered the state to provide adequate funding for education, and Initiative 1098 will generate much of the additional money we need to provide for our schools and protect health care.

With very wealthy Washington State residents finally paying their fair share in taxes, this initiative will raise about $2 billion annually, even after the small business and middle-class tax cuts. The funding will not go to the state general fund, but will be required by law to be dedicated to the Education Legacy Trust Fund for K-12 class size reductions, extended learning opportunities, pre-kindergarten, and expanding access to higher education, as well as to fund the voter-approved Basic Health Plan, public health services, and long-term care for vulnerable seniors and people with disabilities.

What will I-1098 mean for me?

If you are one of the more than two-thirds of Washington State residents who live in owner-occupied housing, you will directly benefit from the 20 percent cut in the state property tax. For a typical homeowner in King County, that means an annual tax cut of about $180. And renters will benefit indirectly as well, through lower rents over time.

Small business owners and those starting a new business will also benefit with the increase of the B&O credit from the current $420 to $4,800 a year. That will exempt about 80 percent of the 473,000 tax-paying businesses in Washington State from the B&O tax and another 10 percent will get a significant cut.

I-1098 will impose a modest income tax only on the wealthiest 1.2% — couples making more than $400,000 per year ($200,000 for individuals). Because of the high exemption level, a couple earning $500,000 annually will pay an effective tax rate of only one percent, while a couple earning $1 million would pay only three percent — a rate of taxation they can easily afford. Moreover, any state income tax payments will be fully deductible from the federal taxable income. And because of I-1098’s strict accountability provisions, the income levels and rates subject to the tax cannot be lowered without a public vote.

Is I-1098 just going to create an income tax that will eventually be expanded to everyone, not just the those with high incomes?

No. Opponents of I-1098 know that reforming our tax code to provide tax cuts for the middle class and small businesses, while creating a strictly limited tax on those with very high incomes to fund education and health care, has broad public support. In fact, an April King 5 poll found that two-thirds of Washington State residents support the provisions in 1-1098. So rather than debating the measure as it is written, 1-1098 opponents are trying to create public fear that the true intent of this measure is to impose an income tax on everyone, and that it is inevitable that after a few years the legislature will change I-1098 to lower the income thresholds subject to the tax.

The drafters of I-1098 meant what they said, and deliberately stipulated in the text of the measure that any change to the income tax thresholds or rates would require a public vote.

What other accountability and transparency measures are included in I-1098?

In addition to the provision that requires that the income levels subject to the tax cannot be lowered without the support of the people in a public vote, I-1098 includes several important accountability and transparency measures designed to protect taxpayers. Those include:

• Regular audits and full public disclosure of spending are required;

• Monthly reports on deposits, withdrawals, and balances on all funds are required to be posted on web;

• School districts must allow citizens to comment on planned distributions and report annually on how funds are used.

How do the income tax rates in I-1098 compare to other states? Will I-1098 drive wealthy people to leave our state for neighboring states?

I-1098’s high-earners income tax will impact only the wealthiest 1.2%, with all income below $400,000 for couples ($200,000 for individuals) exempt from the tax. And I-1098’s top rate of 9 percent, which applies only to income above $1 million for couples ($500,000 for individuals) is lower than that of many other Western states, like Oregon (11 percent), California (10.55 percent) and Hawaii (11 percent), and those states also impose the tax on much lower income levels. For instance, Idaho has a 7.8 percent tax rate which applies to all earnings above $26,418.

Moreover, the claim made by opponents that imposing an income tax on high earners will drive the wealthy from the state is not supported by the evidence. People choose where to live based on multiple factors, including jobs, proximity to family, and life style preferences. In fact, three of the states with the highest top marginal income tax rates (New Jersey, California, and Hawaii) have higher percentages of households with incomes above $200,000 than any of the seven states with no income tax, and in those same three states, the average income of the top five percent of state residents is higher than in any of the states without an income tax. If a state income tax really drove wealthy people to move away, the opposite would be true.

Is I-1098 constitutional?

Yes, according to some of the leading experts on Washington State’s Constitution. Washington does currently operate under an old and outdated court ruling from the 1930s that declared an income tax measure passed by Washington State voters unconstitutional. But the constitutional experts consulted by the Yes on 1098 campaign say that the key precedents that led to that ruling have been overturned in ensuing decades. If the voters approve I-1098 and it is challenged in court, our state’s leading constitutional scholars are confident that it will be upheld as constitutional.

FAQs about I-1098