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Originally published Friday, April 3, 2009 at 12:00 AM

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Obstacles challenge proposals to create an income-tax on the wealthy

Senate Democrats are toying with putting an income tax on the ballot, knowing it likely would end up in the state Supreme Court if voters approved the measure.

Seattle Times Olympia bureau

OLYMPIA — Senate Democrats are toying with putting an income tax on the ballot, knowing such a levy likely would end up in the state Supreme Court if voters approved the measure.

Senate Majority Leader Lisa Brown, D-Spokane, said no decision has been made, but she's looking at "an income tax on very high-income individuals: millionaires or half-millionaires. And that would mean that 19 out of 20 people in Washington state would not be affected at all."

The move would be politically risky for Democrats, who control both the state House and Senate. Voters have rejected income-tax proposals several times, most recently in 1973. That proposal failed by a 3-to-1 ratio.

Talk of an income tax has emerged as the Legislature looks for ways to cut nearly $4 billion in spending to balance the state's next two-year budget. Both the state House and Senate have proposed deep spending reductions, but Democrats also are considering putting a tax increase on the ballot to mitigate some of the cuts.

Brown said she didn't expect an income tax on the wealthy to help with current budget problems, but it would provide a new revenue stream in the future. She said she doesn't envision it as a replacement for current taxes.

Conventional wisdom says an income tax targeting the wealthy wouldn't be allowed without a change in the state constitution. And that would require a two-thirds majority in the House and Senate, and approval by voters.

That's because of a 1933 state Supreme Court ruling that said an income tax must apply equally to everyone, rich or poor.

The ruling said income is a form of property and therefore an income tax is essentially a property tax, said Hugh Spitzer, a University of Washington affiliate law professor who has discussed the issue with Brown.

"The state constitution says that property taxes have to be uniform on every class of property, and property taxes cannot exceed 1 percent of the value of property," Spitzer said. "So if income is treated as property, then an income tax cannot exceed 1 percent and it has to be uniform because it has to apply to everybody."

Brown's idea of an income tax only on the rich wouldn't fit that definition.

The Legislature could try to rally a two-thirds vote in both houses for a constitutional amendment, which seems unlikely, given Republican opposition.

Or, with a simple majority vote in both chambers, lawmakers could send voters a law establishing an income tax and see what happens if it's challenged in court, which would be likely.

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Spitzer said he believes there's a good chance the court now would uphold such a tax, given other court decisions over the past 70 years. Most other states have decided that an income tax is not a property tax, he said.

But we're getting ahead of ourselves.

First, Brown has to decide whether to draft a bill. Senate Democrats then would have to pass the measure. They then would have to persuade House Democrats to go along. Finally, they would have to convince voters that it's a good idea.

"It's one thing to get the conversation going, it's something else to get the voters to approve an income tax," said Todd Donovan, a political-science professor at Western Washington University. "In any economy it's going to be hard sell."

Even among other Democrats. Gov. Chris Gregoire issued a statement Thursday saying she doesn't support a state income tax. However, if the Legislature sent such a measure to voters, it would bypass the governor and go directly to the ballot.

Gregoire was reacting to a bill filed Wednesday by Sen. Jeanne Kohl-Welles, D-Seattle, that would place a 1 percent income tax on people making more than $500,000 a year or $1 million on married couples. Brown said that bill was coincidental to her discussion of tax options.

House Majority Leader Lynn Kessler, D-Hoquiam, said she's not sure an income tax is a good idea.

"I'm concerned about people who have to run for re-election in 2010 and having a big tax increase as one of their votes out of here," she said. "I maintain that if you don't have the majority, you don't have much. As the Republicans can tell you right now."

Senate Republican Leader Mike Hewitt, R-Walla Walla, said an income tax is a dangerous path for Democrats to take. "This politically hurts them," he said. "I don't think this helps them at all."

The tax could be a particularly high-stakes move for Brown, who has said she's considering a run for governor in 2012.

However, Paul Berendt, a former chairman of the state Democratic Party, said this could be the right time for Democrats to take on the income tax.

If the Legislature takes action, "people will be coming out of the woodwork who you've never seen before to support such a thing," he said. "I don't think it's suicide."

Brown said Thursday that she's "under no illusion" that it would be easy to create a new tax structure in Washington state.

"But I'm very convinced that people understand this tax system isn't fair," she said. "And that there are affluent citizens here who can afford to pay more."

She noted that "President Obama ran on a very similar platform. He said it's time for wealthy people in America to pay their fair share."

In the Senate, at least, support appears to be fading for a ballot measure that would ask voters to increase existing taxes, such as a sales tax, to backfill certain budget cuts.

"I think the idea of a sales tax is in trouble in the caucus," said Sen. Ed Murray, D-Seattle, chairman of the Senate Democratic Caucus. "Sending out a sales-tax package right now, I think, is losing steam," he said.

There's growing concern among Senate Democrats about the state's reliance on the sales tax, Murray said. "Probably we've reached the ceiling in terms of what we can do on the sales tax," he said.

Brown has said in the past that she's concerned about what she considers to be an over-reliance on the state sales tax, which she called "an extremely volatile revenue stream."

Staff reporter Jennifer Sullivan contributed to this story.

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

Copyright © 2009 The Seattle Times Company

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