Voters reject state income tax, candy-soda tax

Voters slapped down tax increases on Tuesday, leaving state lawmakers to close a projected $4.5 billion budget shortfall on their own.

By large margins, voters said no to a proposed state income tax, no to taxes on soda, candy and bottled water approved by lawmakers this year, and yes to an initiative that will make it more difficult for the Legislature to increase taxes in the future.

The net effect of all three decisions means lawmakers will have less money to pay the state's bills when they meet in January to begin work on the next two-year budget. Plus, realistically, any new proposal to increase taxes would require voter approval.

"Voters are telling us they've had enough. People want the government to live within its means," said state Senate Republican Leader Mike Hewitt, of Walla Walla. "It's not going to be easy ... . There's always pain involved when you start cutting budgets. We don't have a choice."

Sen. Ed Murray, of Seattle, chairman of the Senate Democratic Caucus, said this election shows voters don't want new taxes, but he believes they'll continue to want services the state provides.

He said he'd like to see the Legislature go back to voters next year with tax proposals to fund certain state services.

"What I worry about is we are in danger of cutting in such a way that we'll hurt the economy of this state" by cuts to K-12 and higher education, Murray said.

Given the size of the budget shortfall, and little prospect of another federal bailout, lawmakers face steep cuts in spending to balance the books. The current two-year budget is $32.3 billion when you include federal aid.

Initiative 1098, which would have brought in billions of dollars for education and health care by creating an income tax on high-wage earners, was losing with more than 65 percent of voters rejecting it statewide. I-1098 was losing in every county, even in King County, where backers had hoped for support.

Initiative 1107, which repeals new state taxes on candy, soft drinks, bottled water and certain processed foods, was winning with more than 62 percent support. I-1107 will cut tax collections by $217 million over the next two fiscal years.

And Tim Eyman's Initiative 1053, which requires a two-thirds vote of the Legislature, or voter approval, to boost taxes, was winning with about 65 percent of voters in support.

Supporters of I-1098 blamed the resounding defeat on a decades-long distaste for a state income tax.

"I think that there are people who have a fundamental negative feeling about new taxes, and that's where the majority (of the opposition) came from," said William H. Gates Sr., a prominent backer of the measure who became its public face in television commercials.

Gates promised to try to do something else about the state's budget problems.

I-1098 would have spent 70 percent of the money on education and the rest on health care, although state lawmakers could have changed those provisions after two years with a simple majority vote.

Scott Stanzel, the Defeat 1098 campaign manager, said in a statement that "citizens determined I-1098 was simply the first step toward establishing an income tax on all Washingtonians."

Polls generally showed tepid support for I-1098, which would have created a tax rate of 5 percent on annual income exceeding $200,000 for individuals and $400,000 for couples, and a 9 percent rate on income that tops $500,000 for individuals and $1 million for couples.

It also would have 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 also would have exempted an additional 118,000 businesses from the business-and-occupation tax on gross receipts by increasing the state credit to $4,800.

The measure was projected to bring in more than $2 billion annually by 2013.

The business community, including Microsoft, Boeing and the Association of Washington Business, strongly opposed the measure, arguing it would hurt businesses, would make Washington less competitive and that lawmakers would assuredly apply the tax to everyone in the future.

The yes campaign pledged to challenge at the ballot any effort by lawmakers to extend an income tax and argued the state desperately needs money for education. I-1098 would have dedicated 70 percent of the money to education and the rest to health care; state lawmakers could have changed those provisions after two years.

The I-1098 campaigns combined raised more than $12 million and blanketed television and radio with commercials.

Supporters of I-1107 (to repeal new taxes on candy, soft drinks, etc.) raised enormous sums of money as well, more than $16 million, almost all of it from the Washington, D.C.-based American Beverage Association.

The campaign argued it was wrong for lawmakers to tax "food and beverages" in a bad economy. A closer look at the tax showed it applied only to candy, soda, bottled water and certain processed foods such as canned chili. It did not tax all food.

The taxes will expire next month, according to the state Department of Revenue.

I-1053, written to make it tougher to raise taxes, generated comparatively little discussion. Voters have approved similar measures before, and polling consistently showed it with a lead.

A last-minute opposition campaign, largely funded by labor and health-care groups, raised and spent more than $1.5 million trying to defeat the measure.

Andrew Garber: 360-236-8266 or agarber@seattletimes.com. Staff reporter Craig Welch contributed.