Wednesday, March 30, 2005
BY CAROLYN LOGUE
Once again Washington state finds itself swimming against a national tide toward a government policy other states and the federal government are abandoning. The state has a rich history of dying to be different. And in every single case the consequences have been disastrous.
• We are the only state that levies a general gross receipts tax on business - taxing them whether they are profitable or not.
• We have the highest minimum wage in the nation and were the first to index minimum-wage increases to inflation - subsequently we also have one of the highest unemployment rates.
• The state Department of Labor & Industries sought to make Washington the only state in the country with a comprehensive ergonomics rule, a bureaucratic confection so costly and confusing that on the day of its announcement, the department's executive summary explaining it was longer than the rule itself. Voters wisely defeated the proposal at the ballot box in 2003.
The most recent addition to this fine lineage is Gov. Christine Gregoire's budget proposal to resurrect the estate tax, or, as it is more accurately known, the death tax, while other states and the federal government are heading the other direction.
The death tax is paid by the survivors of loved ones who worked and paid taxes all their lives in hopes they might be able to bequeath a family business or a family farm to a relative.
In 2001, Congress killed the federal death tax until 2011. Much earlier, however, Washington voters thought the death tax so unfair, they killed it 24 years ago with passage of Initiative 402. But the death tax does not die easy, and the state managed to keep it effectively alive until last month when the Washington Supreme Court in a 9-to-0 decision told them it was wrong.
The death tax is deadly for many reasons.
• It is an insidious form of double taxation, since it taxes taxpayers on the assets their taxpaying descendents have been paying taxes on all their lives.
• It reduces wages and job-creation, because of its enormous compliance costs ($22 billion in 2003) with money that could be circulating through the economy.
• It discourages savings and investments, as business owners seeking to avoid it can spend an average of $125,000 per company on such things as attorney and consulting fees, life insurance premiums, and other costs.
• And most importantly, it hits the middle class - not the wealthy.
As the Wall Street Journal pointed out, "Such plutocrat populists as Warren Buffett and Bill Gates Sr. support the death tax but don't add that they'll never pay it. The super-rich set up foundations that live on with their assets intact. Neither is there any empirical evidence to support the contention that the death tax is a check on the wealth gap between rich and poor. What we do know is that the tax encourages large-scale consumption, as wealthy individuals spend what they can't pass on."
But no matter, Gov. Gregoire has disinterred the death tax from its grave, and to make it more salable she has exempted asset values up to $2 million and also exempted family farmers. Or so it is thought.
The problem is that if you consider that someone retired, say, on his or her Boeing pension with a life insurance policy, a house, maybe a boat or a recreation vehicle can easily run up to the $2 million mark in assets, it is not hard to see how easily a small-business owner or family farmer with buildings and barns, trucks, tractors, other equipment, can easily exceed that limit.
Family farmers should also pay particular attention to the governor's "exemption" as it relates to their federal taxes and special-use valuations. In other words, you most likely cannot avoid the death tax.
The Governor asserted in her press conference that these businesses and their employees are benefiting from Washington's education system and therefore should be paying for it. But the state's small business owners are paying a tax that the average Washington citizen does not pay - the Business and Occupation tax on gross receipts. In addition, Washington's businesses pay a higher percentage of the state's tax burden than businesses in seven other Western states.
Washington's small business owners are already struggling to pay more in taxes than the average citizen. Please don't make them pay more once they die!
Carolyn Logue is Washington state director for the National Federation of Independent Business.