Wed, Oct 06, 2010 - Page 7 News List

FEATURE: US state’s wealthy clash over income tax on the rich

AP, OLYMPIA, Washington

The state that produced the US’ richest man has never taken a cut of its residents’ income.

Microsoft co-founder Bill Gates and his father would like to change that.

They are among the wealthy residents of this west coast state who have joined labor unions and other traditional Democratic allies to support a tax-the-rich ballot measure that is dividing the state’s business leaders. Executives at Microsoft, Amazon and other technology companies have come out against it.

The initiative will test whether voters are willing to buck economic jitters and drain money from their rich neighbors at a time when national Democrats and Republicans have been waging an intense election-year battle over the merits of taxing the wealthy.

Washington’s measure, known as Initiative 1098, would institute a new state tax on the top 1 percent of incomes to pay for education and health programs, while trimming state property and business taxes. The campaign follows January’s overwhelming decision by Oregon voters to increase taxes for corporations and wealthier households.

While his famous son’s public support has so far been quiet, Bill Gates Sr, a prominent Seattle lawyer, helped to draft Washington’s income tax initiative and is the public face of the campaign.

In a recent TV ad, the elder Gates is knocked into a dunk tank by softball-tossing children — a playful approach to the idea that the measure will “soak the rich.”

Gates counters by highlighting the billions of US dollars the income tax would generate for education and healthcare programs.

“It’s really about doing something for the next generation,” Gates says before taking the plunge.

The initiative sets out two tax brackets. The first rate is 5 percent on the portion of adjusted gross income higher than US$400,000 for couples or US$200,000 for individuals.

For joint incomes above US$1 million, the tax would be US$30,000 plus 9 percent on earnings over the threshold. Single earners above US$500,000 would pay US$15,000 plus 9 percent of income above the threshold.

State officials say the tax initiative would raise more than US$2 billion annually from fewer than 40,000 households, or 1.2 percent of Washingtonians filing US federal returns. At present, Washington is one of seven states in the US without a personal income tax.

The US$4.3 million “yes” campaign is bankrolled largely by labor unions, particularly those representing government employees — more than US$1.7 million has come from various arms of the Service Employees International Union. Individual donors include Gates Sr, who has given US$500,000, and venture capitalist Nick Hanauer, who has donated US$250,000.

However, plenty of big-name business leaders are unhappy with the idea.

Amazon founder Jeff Bezos and Microsoft chief executive officer Steve Ballmer have each donated US$100,000 to the US$4 million opposition campaign, which also has drawn contributions from Russell Investments, Paccar, software billionaire Charles Simonyi and members of the Nordstrom family.

Opponents stress that state lawmakers could lower the income thresholds with a simple majority vote two years after the initiative is enacted and point out that state officials routinely raid “dedicated” spending accounts in lean years.

They also add that, in a time of terribly slow job growth, taking more money from entrepreneurs and businesspeople could seriously crimp the state’s economic rebound.

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