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Inside Olympia — Examining Washington’s Tax System

Twenty years ago, a committee led by Bill Gates Sr. – the father of Microsoft founder Bill Bates – led a study of Washington’s tax system, and recommended a series of changes. The recommendations were to replace Washington’s business and occupation tax or “B&O” tax – which is on gross income rather than net income – with a value-added tax. The report also recommended a flat rate personal income tax in exchange for eliminating the state property tax and reducing the sales tax rate. The the effort couldn’t win legislative support, and the report has gathered dust on a shelf ever since. 

In 2010, Gates Sr. backed a ballot measure to institute an income tax on high income earners in Washington. But voters soundly defeated that idea. 

In 2017, the legislature authorized a fresh look at the state’s tax structure with the goal of making it more equitable, stable and transparent. Unlike the earlier “Gates” study, this effort was headed by state legislators. It was reauthorized and expanded in 2019 leading to an effort to engage the public, solicit ideas and feedback and report back to the legislature. That work concluded this summer with a final report and the disbanding of the bipartisan Tax Structure Work Group. 

The Work Group produced two main recommendations. One sounded familiar: replace the B&O tax, this time with a margins tax. The second focused on redoing the limit on how local property taxes can grow. So far neither has been adopted, though both were introduced in the 2023 legislative session. 

This week, we sit down for the full hour with the two legislative co-chairs of the Tax Structure Work Group: Senators Noel Frame of Seattle, and Keith Wagoner of Sedro Woolley. What are their thoughts on the work of the Work Group, and Washington’s tax structure? What did they hear from the public during their town hall meetings? And why are efforts to change the tax structure so challenging?