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Would I-1098 Damage Washington’s Business Climate?

In a media teleconference on Oct. 28, I-1098 proponents, including venture capitalist and entrepreneur Nick Hanauer, rebutted a popular argument made by the opposition, that I-1098 would drive business away from Washington State.

The “1098 is anti-business” sentiment has been shared by The Spokesman-Review, The Wenatchee World, The Seattle Times and a laundry list of special interest groups. The opposition argument generated media attention after Texas Governor Rick Perry sent letters to approximately 90 Washington businesses and employer groups, invited them to relocate to Texas should voters endorse I-1098. Texas is one of eight states that does not currently have a personal income tax [1].

Hanauer told media that the opposition argument implies that business owners and entrepreneurs are robots who care only about taxes and nothing else. He argued that the cultural and social climate for business, as well as basic infrastructure, is “infinitely” more important than the income tax level.

“If it were true that [an income tax] would drive everyone away, then places like California and New York would have driven their businesses away,” said Hanauer. “If that were true, Silicon Valley would be in South Dakota. If that were true, Wall Street would be in Wyoming.”

Hanauer’s point is grounded. According to the non-partisan Tax Foundation, California and New York have the “worst business tax climates” while South Dakota and Wyoming have the best and third-best tax climates, respectively. Washington places 11th with its current tax structure.

However, looking at GDP, California ranks 8th in the world, Texas is 14th and New York is 15th. (They rank 1st, 2nd, and 3rd among the 50 states.) South Dakota ranks 47th of the 50 states and 123rd in the world; Wyoming is 48th and 125th. Thus the allegation that an income tax would lead to business flight appear to be invalid.

[1] States with no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Washington and Wyoming. However, several have corporate income taxes: Alaska, Florida, New Hampshire and South Dakota. Washington has a business and occupation tax on gross receipts.

Learn more about Initiative 1098.

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