On March 30 the Tax Structure Work Group voted to move forward five tax reform concepts for elaboration and analysis. To my surprise, a personal income tax was not one of the concepts that moved forward.

A 2017-19 budget proviso (see section 101) initially established the Tax Structure Workgroup (TSWG) within the state House of Representatives. During this biennium, the TSWG had two members, one from the House Democratic Caucus and one from the House Republican Caucus. The stated purpose of this initial TSWG was “to facilitate public discussions throughout the state regarding Washington’s tax structure” through a series of up to seven public meetings across the state. Staff support for this work was provided by the House’s Office of Program Research.

A 2019-21 budget proviso expanded the TSWG to nine voting members (two from the House Republican Caucus, two from the House Democratic Caucus, two from the Senate Republican Caucus, two from the Senate Democratic Caucus and one appointed by the Governor) and three nonvoting members (one representing the Association of Washington Cities, one representing the Washington State Association of Counties and one representing the state Department of Revenue). The proviso directed the Department of Revenue (DOR) to: (1) update the analyses of various tax reform alternatives prepared by the 2002 Washington State Tax Structure Study Committee (the Gates Committee), with revenue estimates for the 2017-2019 biennium; (2) analyze various options for replacing the business and occupation tax; and (3) estimate the amount of revenue Washington state would have received during the 2017–19 biennium if the state had had either Oregon’s or Idaho’s tax systems. TSWG was then directed to present the results of DOR’s work at five or more public meetings across the state and gather public feedback. The TSWG contracted to receive support from two consultancies, Triangle Associates and ECONorthwest.

A 2021-23 budget proviso instructed WTSG to recommend legislation for consideration in the 2023 session:

Between the conclusion of the 2022 legislative session and December 31, 2022, the work group is directed to finalize policy recommendations and develop legislation to implement modifications to the tax structure, informed by [the various analyses prepared by DOR for the TSWG and the public feedback received]. Legislative proposals recommended by the work group may not collectively result in a loss of revenue to the state as compared to the November 2022 biennial revenue forecast published by the economic and revenue forecast council. …

During the 2023 legislative session, it is the intent of the legislature to consider the [TSWG’s recommended proposals].

The TSWG took its first formal steps toward formulating recommendations at a virtual meeting held on March 30. (Links to meeting materials and TVW video are available here.) During January, February and early March the consultant team had met individually with TSWG members to identify tax scenarios each was interested in pursuing. (See pages 5-16 of the meeting packet and pages 58-64 of the meeting slide deck.) Based on these discussions, the consultants presented 11 broad policy concepts that the TSWG might move forward for further elaboration and analysis. The nine voting members then voted up or down on each concept.

Five concepts received majority support:

• Expand/increase the working families tax credit (8 yes, 1 no)
• Increase the property tax annual growth limit factor (5 yes, 4 no)
• Establish a primary residence property tax exemption (9 yes, 0 no)
• Establish a wealth tax (5 yes, 4 no)
• Replace B&O tax with a margins tax (9 yes, 0 no)

(The margins tax a modified business and occupation tax that allows taxpayers a choice of four deductions from revenue: (1) cost of goods sold, (2) total wages paid, (3) 30% of revenue, or (4) $1 million.)

Six concepts failed to get majority support:

• Establish a flat personal income tax (4 yes, 5 no)
• Establish a progressive personal income tax (3 yes, 6 no)
• Establish a flat corporate income tax (3 yes, 6 no)
• Establish a progressive corporate income tax (1 yes, 8 no)
• Establish an employer compensation tax (2 yes, 7 no)
• Replace B&O tax with a value added tax (1 yes, 7 no, 1 not voting)

Voting was conducted using Mentimeter, an online tool that was used during the TSWG’s public meetings to poll attendees’ opinions on various policy options. Because Mentimeter polls are anonymous, there is no record of how individual workgroup members voted on the concepts.

Between now and September, DOR is to develop potential legislation for each of the approved concepts. At its May 25 meeting, the TSWG is to give DOR guidance as to major features and assumptions to include in each instance. The work group will receive preliminary modelling results and legislative language at its September meeting and final results and language at its December meeting. The work group will then vote on whether to actually recommend the legislation to the legislature.