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Originally published October 23, 2010 at 10:01 PM | Page modified October 25, 2010 at 11:24 AM

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Income-tax measure took years to shape

Initiative 1098 is the result of years of conversations and surveys as its backers tried to figure out a way to reverse more than 70 years of antipathy toward income taxes.

Seattle Times Olympia bureau

What I-1098 would do

Create a tax rate of 5 percent 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.

Cut the state portion of everybody's property taxes by 20 percent. For a King County homeowner, that would amount to about a 4 percent reduction in the annual overall property tax bill. I-1098 would also exempt an additional 118,000 businesses from the B&O tax on gross receipts by increasing the state credit to $4,800.

Fund health care and education.

Register to vote by Monday

On the ballot: Nine statewide measures; seats for U.S. Senate and House, state Supreme Court, the entire state House of Representatives and about half the state Senate; one Metropolitan King County Council race; an increase to the King County sales tax, local measures including funding for schools and fire districts.

Voting deadline: The election is mail-only for 38 of 39 counties in the state (Pierce County still maintains polling places). Ballots must be postmarked by Nov. 2 or put in a drop box by 8 p.m. that day. Be sure to sign the ballot envelope.

Not registered?: You'd better hurry; the deadline is Monday. You can visit the King County Elections office, 9010 East Marginal Way S. in Tukwila, by 4:30 p.m. If you're in Snohomish County, go to the Auditor's Office, 3000 Rockefeller Ave. #505 in Everett, by 5 p.m.

Get a ballot: If you lost your ballot or never received one, in King County call 206-296-8683. In Snohomish County call 425-388-3444.

Drop boxes: Ballots placed in drop boxes do not require postage. For the list of locations in King County: www.kingcounty.gov/elections/voting/ballotdropboxes.aspx. In Snohomish County, see your ballot insert.

Voting centers: For disabled voters unable to vote by mail, accessible voting centers are available at King County Elections in Tukwila, Bellevue City Hall and Union Station in Seattle. For hours, call 206-296-8683 or go to www.kingcounty.gov/elections/voting/accessible.aspx. In Snohomish County, accessible centers are at the Auditor's Office in Everett and the Lynnwood Sno-Isle Library; for more information, go to www1.co.snohomish.wa.us/Departments/Auditor/Divisions/Elections_Voting/

Compiled by Seattle Times staff

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Aubrey Davis recalls the effort to put an income-tax measure on the November ballot starting six years ago, with a question:

"What in the hell does it take to even talk about it?"

Voters had already rejected the idea four times and most politicians were afraid to go near it. Former King County Executive Ron Sims made the issue a centerpiece of his 2004 bid for governor but didn't survive the primary.

Still, Davis and others believed the idea should not be dropped because the state's heavy reliance on the sales tax places a disproportionate burden on the poor.

Plus, they saw a need to find more money for education and health care — which is where income-tax revenue will go if voters next week approve Initiative 1098, a tax on the state's wealthiest residents.

"Those people with high incomes get it partly because of their skill and work and partly because of luck and partly because they live in a civil society. The civil society is suffering," said Davis, 93, who was 17 years old when voters first rejected an income tax in 1934. "It's only fair that the people who have had the better breaks and are doing better financially share more of that."

Davis, a former chairman of the state Transportation Commission and mayor of Mercer Island, was part of a small group of policy wonks who started meeting in 2004 to see if they could figure out a way to transform the state's tax system.

William H. Gates Sr. was key to the effort as well, along with John Burbank and Marilyn Watkins from the Economic Opportunity Institute (EOI), a liberal think tank.

They were in no hurry. After all, they were trying to figure out a way to reverse more than 70 years of antipathy toward income taxes.

Methodical steps

The group proceeded methodically, looking ahead years rather than months. They met with dozens of people over lunch, including academics, lobbyists and Democratic leaders such as Sims, Gov. Chris Gregoire and Senate Majority Leader Lisa Brown, D-Spokane.

"We realized that you can't just, like, hatch an initiative overnight. It takes some work. You have to bring together the people and ... figure out what's the best policy and write it into the language of the initiative and get support," said Burbank, executive director of the EOI, where Davis serves as a board vice president.

The end product, I-1098, was shaped by those lunchtime discussions, as well as polls. Surveys showed a measure that targeted high-wage earners, cut taxes and put money into education and health care stood a chance with voters.

I-1098 would create an income tax only on earnings above $200,000 for individuals and $400,000 for couples. The initiative also would reduce the state portion of property taxes for everyone and eliminate the business-and-occupation tax for many small businesses.

Lawmakers can't change initiatives in the first two years after passage without a two-thirds vote in the House and Senate. After that, they can make changes with a simple majority vote.

The state's business community, including Microsoft, Boeing and the Association of Washington Business, have vigorously opposed I-1098, arguing the tax would hurt business and the state's ability to compete, and that the Legislature would eventually extend the tax to everyone.

There's a reason voters have repeatedly said no to income taxes, said State Senate Republican Leader Mike Hewitt, R-Walla Walla. "People think it's just another way to grab money."

Long history of rejection

It was decided early on that the only way to create an income tax was to go directly to the people.

"From like day one," Gates, 84, said. "There wasn't the slightest possibility that the Legislature would adopt one."

Gates should know. He was chairman of a panel, created by the Legislature in 2001, that analyzed the state's taxes and suggested ways to make the system less regressive without a net increase in taxes.

One recommendation was to implement an income tax and, at the same time, reduce the state sales tax and eliminate the state property tax.

Their tax recommendations went nowhere.

Gates attributes Washington's dislike of income taxes to human nature.

"There is something in human instinct that you have an animosity for the things you don't know about, and you have more comfort for the things you do know about," Gates said. "We have, in this state, a built-in antipathy for an income tax."

Voters did approve an income-tax proposal in 1932, but it was later overturned by the state Supreme Court. Since then, voters have rejected personal and corporate income-tax ballot measures in 1934, 1970, 1973 and 1975.

Brown, the Senate majority leader, has also proposed measures in the past couple of years to create a high-earners income tax, in efforts unrelated to the I-1098 campaign. The proposals never came up for a vote.

Getting others on board

The past failures were not a deterrent for Davis, Gates and the EOI staff.

In 2008 they decided to shoot for a ballot measure this year. In 2009, serious planning began for a campaign with labor, education and health-care groups, among others, to help with the effort.

Those groups' endorsements and money were critical.

More than half of the $6.3 million raised by the I-1098 campaign has come from organized labor, including about $2.3 million from the Service Employees International Union.

State records show Gates has contributed $600,000 and Davis, $5,000.

The goals of I-1098 were shaped by polls, policy and pragmatism.

Gates said his chief objective was to provide more funding for education and health care. The state is projecting a $4.5 billion budget shortfall in the next two-year budget and continuing shortfalls far into the future.

An analysis by the state Office of Financial Management found that I-1098 would bring in more than $2 billion a year for education and health care by 2013.

Polls showed that restructuring the state tax system in the way the tax committee recommended in 2002 would not fly with voters, Gates said.

They also showed voters weren't moved by concerns that the state sales tax places a greater burden on the poor, Davis said. "A lot of folks, like me, think that's important, but most voters will not vote on that basis," he said.

The surveys did indicate an interest in reducing taxes.

"We found out that having the business-and-occupation tax saving, and property-tax saving, as part of the understanding improves ... the polling, which you would expect," Davis said. "If you just asked 'are you in favor of an income tax,' we wouldn't expect to win."

So I-1098 backers included a provision to increase the current B&O tax credit to $4,800, which would exempt an additional 118,000 small companies from paying the tax. The measure also includes a 20 percent cut in the state portion of property taxes.

A person who owns a $300,000 home in King County would see his property-tax bill drop by $133 on average this year, if the measure were currently in effect.

As for targeting the rich, Davis said polls showed voters were more receptive to a tax on the wealthy.

He argues taxing high-wage earners is appropriate, given the regressive nature of the state's tax system.

"There are some people who are wealthy who think, by God, they did it themselves and to hell with you," he said. "Pretty clearly, you can live in Somalia with that point of view, but you can't live here."

Gates would pay an income tax under the initiative. Davis would occasionally be subject to the tax, according to the I-1098 campaign.

What if measure fails?

Although I-1098 was designed with voters in mind, polls this election have never indicated strong support.

The most recent University of Washington poll of registered voters, done earlier this month, showed the measure trailing with 51 percent opposed and 42 percent in support. The rest were undecided.

Davis said he's not sure what will happen to the income-tax debate if I-1098 fails.

"We don't have a plan B," he said.

State Sen. Joe Zarelli, R-Ridgefield, the ranking Republican on the Senate Ways and Means Committee, thinks defeat would squash talk of an income tax for the foreseeable future.

"I think it will have shown again that people really don't trust us," he said. "I don't see it coming back up, certainly not in the Legislature anytime soon."

Sen. Brown isn't so sure.

"I've always thought it was going to be a long process of discussion with the public about a variety of alternatives before we really get to success in the tax structure," she said. "I think the debate just moves forward regardless of the outcome of the initiative."

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

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