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  Lead Story Six

Why Did the RTA Choose a Funding Source that Adds to the Regressiveness of Our Taxes?

by the Forum Editors

Washington State has the dubious distinction of having the nation’s most regressive taxes. (Graphic available.) People in the lowest income categories pay much higher proportions of their income in taxes compared to those in high income brackets. This problem has been documented by Citizens for Tax Justice, a national organization that has analyzed and compared taxes in the 50 states for more than a decade. Oregon's tax system, in comparison, in spite of it's high dependence on the property tax, distributes total taxes paid almost equally across income groups. (Graphic available.)

The funding plan proposed by the RTA would compound this inequity. By relying on the sales tax for four-fifths of its local tax revenues ($1.53 billion), the impact on financially strapped families would increase. Residents of the central Puget Sound region would be paying the fourth highest sales tax in the nation, at 8.6%. Maximum state rates vary from a high of 9% to a low of 4%.

States With the Highest State and Local Sales Tax Rates

Maximum State Rate Maximum Local Rate Maximum State/Local Rate
Illinois* 6.25 2.75 9.00
Louisiana* 4.00 5.00 9.00
Tennessee* 6.00 2.75 8.75
Washington** 6.50 2.10 8.60

* Rates as of January, 1996

** Rate in King, Pierce, and Snohomish Counties should the RTA plan pass

Source: Washington State Department of Revenue, Comparative State and Local Taxes, May, 1996

The RTA had other choices. In fact, it had choices that its own polls suggested would be more popular with the voters.

The legislature gave the RTA authority to levy a local sales tax of up to 0.9 percent and a local motor vehicle excise tax (MVET) of up to 0.8 percent. It also provided authority to charge employers a fee of up to $2 per month for each of their employees. This commuter “head tax” was endorsed by lobbyists representing the business community. Separately, counties were given permission to adopt a local gas tax of up to 10 percent of the state gas tax, with the revenues constitutionally restricted to road purposes. This tax could have been used for HOV lanes and connectors. The same legislation allows cities and counties to tax commercial parking operators.

These sources and the potential revenues they could generate provided the RTA with the flexibility to design a fairer tax package at the level of local funding they seek ($1.98 billion).

Regional Funding Sources Available to the RTA to Generate $1.98 Billion

Source Maximum Rate Estimated 10-year Revenue in RTA Region at Maximum Rate
Sales tax 0.9% $3.44 billion
Motor Vehicle Excise Tax 0.8% $1.2 billion
Commuter Fee $2/employee/month $0.38 billion
Local Option Gas Tax 10 % of state tax (23 cents/gal.) $0.35 billion
Local Option Commercial Parking Tax No maximum Rate fixed by city or county

The MVET, which is essentially a property tax, is annually assessed as a percentage of a vehicle’s value. The value is assigned through the application of a state formula that takes into account new value and vehicle age. Low income people tend to own older vehicles and fewer vehicles, and therefore would pay less taxes to support the RTA than high income people had the MVET been the major funding source instead of the sales tax.

The MVET has the additional advantage of being a tax on the source of our transportation problems -- to many cars taking too many trips and spewing too much pollution. It would have served as a disincentive to congestion, had it been the major funding source. All of the other funding sources -- the local gas tax, commuter fee, and parking tax -- would have offered the same advantages.

Regional voter surveys consistently indicate support for transportation taxes such as the gas tax and MVET over other taxes to fund transit. People do make the connection between excess vehicle use and the cost of operating a vehicle. Even business leaders in a Seattle Chamber of Commerce survey of members strongly expressed support for a gas tax or MVET over a sales tax.

The RTA appears to have violated its own enabling legislation which requires it to consider equity in designing its plan. Geographic equity -- spending its dollars in subareas in roughly equal amounts -- was of interest, but apparently no consideration was given to social equity, specifically the fairness of its tax proposal. This concern was raised by a citizen group that advocates for a fair tax system before the RTA made its decision. They received no response. A copy of the letter from People for Fair Taxes to the RTA is provided.

So why did the RTA go with the sales tax? Probably out of concern that any new tax might be harder to explain.The devil you prefer is the one you know. But the result, unfortunately, could be further upward rate creep of a tax that hits hardest on the people who should be benefiting most from transit investments.

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Last modified: February 07, 2011