The Truth Needle | Half true: I-1098 ad doesn't tell whole story

The claims: A TV ad from the Defeat 1098 campaign says the income-tax initiative would create the "4th highest state income tax," that the tax "can be extended to you in 2 years" and that it would be the "largest tax increase in history."

What we found: Initiative 1098 would create a 5 percent tax rate on annual income exceeding $200,000 for individuals and $400,000 for couples, and a 9 percent tax rate on income that tops $500,000 for individuals and $1 million for couples.

The measure also would cut the state portion of property taxes by 20 percent and newly exempt 118,000 businesses from the business-and-occupation tax on gross receipts by increasing the state credit to $4,800.

In the commercial, various claims about the initiative fly and pounce as an annoyed and startled couple duck and ultimately flee.

When we consider the commercial's key assertions, we find the ad to be half true.

The claim about I-1098 creating the fourth-highest state income tax omits crucial information about who would pay the new tax.

In failing to note which income brackets would be taxed, the ad could leave viewers with the mistaken impression that the state — broadly speaking — would have the fourth-highest income tax.

It is true that if I-1098 became law, Washington would have the fourth-highest income-tax rate — but only on individual earnings above $500,000 a year, based on information from the Tax Foundation, a tax-research group based in Washington, D.C., and other sources. The Tax Foundation has criticized the concept of an income tax targeting the wealthy.

Three states would have a higher rate on taxable income, according to the foundation: Oregon, at 11 percent for earnings of more than $250,000 a year; Hawaii, at 11 percent for earnings above $200,000 annually; and California, at 9.55 percent for earnings above $47,055 a year. California's rate will drop to 9.3 percent next year. It also has a 1 percent income-tax surcharge for earnings of more than $1 million annually.

Technically, if I-1098 were in effect right now, Washington would have the fifth-highest income-tax rate on the wealthy because Rhode Island has a 9.9 percent income-tax rate for people earning more than $373,650 a year. That state's rate will drop to 5.99 percent next year.

"The ad is accurate," Steve Mullin, president of the Washington Roundtable, said in an e-mail.

The group, which represents corporate executives, has played a lead role in opposing the initiative. "To spur economic recovery and job growth, Rhode Island has dropped its top rate significantly starting next year. Consequently, Washington will have the fourth highest rate if 1098 is implemented."

If voters approve I-1098, Washington would start collecting the tax in January 2012. Washington would be the only state in the country with an income tax that applies only to people making more than $200,000 annually.

Forty-three states have individual income taxes. All of them have taxes starting at much lower levels of income. Alabama, for example, has an initial income-tax bracket that kicks in for individuals making more than $3,500, according to the Tax Foundation.

As for the claim about the "largest tax increase in history," we'll assume the Defeat 1098 campaign means the largest in state history.

That assertion is true.

The state Department of Revenue did an analysis earlier this year comparing tax increases going back 28 years.

That report found the biggest tax increase was in 1983, when lawmakers approved a tax package worth $818 million in its second year of collection. Adjusted for inflation, it was worth $1.6 billion in today's dollars.

I-1098 would be worth $2.285 billion in its second year. So in actual dollars and adjusted for inflation, it would be a bigger tax increase than the 1983 tax package.

However, the economy was much smaller in 1983. That tax package represented roughly 1.3 percent of the state's personal income at the time. I-1098 would represent about 0.79 percent of personal income.

And finally, the ad makes the claim the tax "can be extended to you in 2 years."

You'd have to be following the back and forth between opponents and supporters pretty closely to understand what that means.

Under state law, it takes a two-thirds vote of the Legislature to amend an initiative the first two years after it's approved by voters — currently a political impossibility. After that, lawmakers can change voter-approved initiatives with a simple majority vote.

Supporters argue it would be politically difficult for state lawmakers to broaden the tax without sending it to voters for approval, and that even if they did, someone likely would try to challenge such an increase at the ballot.

I-1098 opponents maintain state lawmakers would be unable to resist applying an income tax to everyone in the state.

"We believe in two years this is going to be pushed out on everybody," Mark Funk, a spokesman for the no campaign, said in an interview.

Andrew Garber: 360-236-8266 or agarber@seattletimes.com