Defeat 1098 For All of Washington

11/1/10

[Editor's Note: This editorial was co-authored with Patrick Ennis]

In the 1990 budget compromise, Senate Majority Leader George Mitchell of Maine, pushed a 10 percent luxury tax through Congress, including that for yachts that cost more than $100,000. Enough Democrats and Republicans agreed that the Robin Hood tax, as it was called, would protect jobs by taxing those who could “most afford” to pay more. For the economy then, as it is now, was struggling. Simple enough it seemed to many at the time.

But a funny thing happened on the way to expanded revenue and saved jobs. Those who could “most afford” it stopped buying yachts – to the tune of a 77 percent drop over the following year. Most profoundly, as the bottom dropped out of yacht sales, an estimated 25,000 blue-collar shipworkers, lost their jobs. Many of these from Senator Mitchell’s home state of Maine – which until then, had a generations long tradition in shipbuilding.

Fast forward 20 years to Washington State Income Tax Initiative 1098 that confronts us today. The public employee unions whose bosses have given more than $4 million to its passage, claim to do so in the name of saving jobs in education and healthcare. According to their own website “Washington’s middle-class families are struggling and the wealthiest need to start paying their share.” This Robin Hood tax is aimed at those most able to afford it. It too will have destructive unintended consequences.

Entrepreneurial capital – the lifeblood of Washington’s vibrant start-up tech community would be under severe pressure to move elsewhere, bleeding jobs to the 46 other states whose tax code would be more welcoming. Washington’s innovation economy is in a constant battle to attract the best and the brightest. Adding to that burden the need to sell prospective employees on the 4th highest personal income tax in the country will cause many to avoid Washington altogether and take their talent elsewhere.

Those targeted by this tax, are also the most able and willing to legally avoid paying it, by moving their businesses and jobs to a state where they can do exactly what they do now, without the added tax burden this act imposes. With a state unemployment rate of 9 percent, why force the hand of Washington job producers in this way?

Oregon understands this first hand having recently passed a similar hike on income taxes on its wealthy, but realizing only half … Next Page »

John C. Drescher is Executive Director of TechNet Northwest, based in Seattle. Patrick J. Ennis has 25 years of experience turning technologies into products. Follow @

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  • Seve

    What’s your source for the claim that people “stopped buying yachts?” It’s widely held that since the tax was only on yachts from the U.S., people just went to Caribbean shipbuilders instead. (See: Bernanke’s “Principles of Microeconomics” and the Time Magazine article “Taxes: Tempest in a Yacht” from July 1, 1991)

    Also from Bernanke: The Joint Economic Committee found that the boating industry job losses were 7,600. Not 25,000. Where are you getting your figure?

  • Corporate Lawyer who will be subject to the tax

    “Entrepreneurial capital – the lifeblood of Washington’s vibrant start-up tech community would be under severe pressure to move elsewhere” — such as the low-tax jurisdictions of Massachusetts and California, which are desperate to attract start-up tech companies!

    The hypocrisy and greed of the opponent are startling…but not surprising.

  • JR

    Well stated John… we need Washington to be a state that attracts entrepreneurs, companies, top executives, and all the jobs that go with them.

    People need to stop thinking the equation is as simple as ‘take from one and give to the other’ – especially when we are in fierece competition with other states for precious jobs.

  • http://www.validar.com vk

    Nice article John. Why go after the entrepreneur when they employ a majority of Washington residents?

  • Mark

    How many times must it be said that the Washington State tax system is the *most regressive in the country*. Is there no cause for considering just a bit of social equity instead of the pure bottom line. Also there is a little thing that Seattle/WA state has called “quality of life” that are generally helpful in recruiting employees. And it helps to actually have quality schools that contribute to this, and where individuals give back to the community to maintain this advantage. While we all work hard to make a living, and even very good salaries (for those who would be taxed), there is a small price to pay for living in a civilized, law and order society were entrepreneurial spirit can flourish, and the opportunity to make vast sums of money exists. 90% of this article is scare tactics.

  • Ricardo

    “Money goes where it is wanted and stays where it is well treated, and that’s all she wrote. This annoys governments to no end.” -Walter Wriston Wired 4.10 October 1996.

    Walter Wriston was CEO of Citicorp/Citibank and knew a thing or two about money.

    If 1098 passes, I would invite current supporters to wait two years and (1) look at how much tax revenue it yielded, (2) watch as the state legislature lowers the income threshold, and (3) ask Bill Gates, Sr. what happened.

  • John Drescher

    Seve,

    Thanks for taking the time to read our take on State Income Tax Initiative 1098.

    The source for annual yacht sales decline and shipbuilding job loss estimates following passage of the federal luxury tax is from the Washington Times, Inside Politics, January 7, 2003, by Greg Pierce.

    Even if you prefer Bernanke’s estimate, the record is clear that ill-conceived taxes result in significant job loss by those least intended to be affected by them.

    John

  • Steve

    Social Equity? It sounds like confiscation to me. If the majority of voters are not willing to PAY for education and healthcare or anything else for that matter then government has no business doing it.

  • Mark

    Steve – I sure hope that you went to private school your whole life and paid for it, without any public support, based on a comment like that. Don’t we think that education is what drives innovation, technology and business. So now we are abolishing all taxes and public education because the majority of the won’t pay for it. Really is everything put to a referendum – highways, sewers, garbage, 911 service? The government should do nothing unless the public explicitly asks for it.

  • Steve

    Mark. I am just saying if it is important enough to do, the majority of people should be willing to pay for it. If they are not willing to pay for it, is it really important? Paying for basic education isn’t something you ask 1.7 percent of the population to pay for. It is something all of us should be willing to contribute to.
    Further, making spending decisions where 98 percent of people don’t pay will lead to irresponsible unsustainable spending. People just don’t say no to “free” stuff.

  • P

    Mark,

    Saying it over and over won’t make it true. It does not matter how many times you say a lie, it does not become more true.

    Washington actually does not have the most regressive tax system in the country. Not by a long shot. Given the effect of entitlements and other subsidies, Washington is actually a totally neutral tax state.

    Facts make the difference, and the facts say that Washington is neutral from a progressive/regressive standpoint and about 25th in burden. We are totally average.

    Why should we take that and become one of the most onerous states in the nation? Why should we do something as immoral as appropriate property from 3% of the population to satisfy the desires of the rest of the population? Would it be acceptable if the 3% were Gay/Lesbian? Muslim? Vegan? Of course not. That is the tyranny of the majority, and no majority should ever be able to appropriate the freedom, rights, or property of the minority. 1098 does all three.

    Want an income tax? Okay, write one that is honest, is applied to the entire population, and put it before the voters. Oh, wait, that will never pass, will it? Damn. I guess you can only get your way if you prey on 3% of the population.

    Nevermind the hypocrites like Gates Sr. and Hanauer. Nice to advocate this once they have already made their fortune. They can afford this. But the entrepreneurs and companies that the State of Washington would like to attract have not made their multiple billions yet. The two of them and the rest of their landed wealth brethren should shut their mouths. If they want to make a difference, they should give their own money. Lots of it. More than they have to date. Then there would be no need for this tax. But advocating for the appropriation of other people’s money when yours is secure and protected is heinous and pathetic.

    P

  • Ted

    State income tax rate for Massachusetts: 5.3%
    State income tax rate for California: 9.3%
    State income tax rate for Californian millionaires: 10.3%

    Clearly, entrepreneurs are preparing to flee the Boston, San Diego and San Francisco biotech/tech markets any day now. In fact, many experts feel that taxation is the most important reason for the astonishing growth seen in South Dakota biotech.

    -t

  • http://Www.northcoastbio.com Johnny Stine

    “Entrepreneurial capital – the lifeblood of Washington’s vibrant start-up tech community would be under severe pressure to move elsewhere, bleeding jobs to the 46 other states whose tax code would be more welcoming. Washington’s innovation economy is in a constant battle to attract the best and the brightest.”

    Vibrant start up community? I’m afraid there is no one left to leave under the severe pressure you speak of. They’ve already left and it wasn’t because of something like 1098…..the exodus has been going on since 2003 at least. Thus I thInk the battle you speak of to attract the best and brightest looks more like a conscious effort to show them the door.