* State plan to add 9 pct tax on millionaire couples
* In Congress, fate of high-earner taxes up in air
By Kim Dixon
WASHINGTON, Oct 14 A vote 3,000 miles from the
U.S. Capitol over tax rates, pitting the likes of Amazon's Jeff
Bezos against Microsoft founder Bill Gates' father, shadows a
wider national debate over how much tax the wealthy should
Voters will soon decide whether to approve Washington
state's first-ever state income tax, in a ballot proposal as
part of the Nov. 2 midterm elections.
The plan levies 5 percent on people earning over $200,000,
and 9 percent on couples making $1 million or more.
The debate mirrors one roiling the nation's capital, where
lawmakers left town to campaign after failing to agree on
renewing lower taxes for wealthier Americans, tax rates that
will expire at year end with no action.
After initially running even, a recent poll found income
tax opponents gaining ground in Washington state, home to
well-known tech companies and their wealthy owners.
In nearby Oregon, voters recently passed a plan to raise
taxes on high-earners and business, taking some by surprise.
"There seems to be some willingness among voters to stick
it to the rich," said John Matsusaka, a business and law
professor who studies voter initiatives at the University of
Southern California. "The big idea is that voters could go for
a targeted tax increase on the rich."
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Washington is one of only seven U.S. states with no income
tax. If the ballot initiative passes, it would be one of 10
states that have enacted high-earner taxes since 2003, although
one state subsequently repealed the tax, according to the
Center for Budget and Policy Priorities.
Five states have taken action in the past two years,
according to the group.
"Across the country, there has been a movement to introduce
millionaire taxes," said Kim Rueben, economist at the
liberal-leaning Urban Institute.
Nationally, the battle over tax rates has been a favorite
issue of the conservative Tea Party grassroots movement. In
Washington, the wealthy are at the forefront of the fight over
"It is kind of the battle of the billionaires," said Brett
Bader, a Washington state Republican consultant.
Washington state-based executives are lined up on both
sides. Microsoft CEO Steve Ballmer and co-founder Paul Allen,
and Amazon.com (AMZN.O) CEO Jeff Bezos each gave at least
$100,000 to defeat the measure, according to filings.
Microsoft has issued a statement expressing concern about
the proposal, although the pro-tax campaign says company
founder Bill Gates backs it.
He has not campaigned publicly on the issue but his father,
William Gates Sr., is one of the proposal's main backers.
The elder Gates, a retired attorney who has been active in
Washington state politics for years, has put up $500,000 to
support the measure, which he helped write.
The most recent survey by independent Elway Research
pollsters found 48 percent against the tax, and 41 percent in
favor. A month earlier, 42 percent were opposed, with 44
percent in favor.
SOAKING THE RICH?
"Some people say initiative 1098 is about soaking the
rich," says the elder Gates in an ad that has the 84-year-old
playfully plunging into a vat of water to illustrate his point.
"But only the wealthiest 1.2 percent will pay more."
At the other end of the country, congressional Democrats
tried in vain to make that point to win renewal of tax cuts for
individual income up to $200,000, but end cuts for those above
that level or families earning more than $250,000.
Worried that new taxes could forestall the economic
recovery, Republicans and some conservative Democrats blocked
the move, leaving the tax cuts issue pending for when Congress
returns in November -- after the elections.
But unlike in Washington, D.C., the debate in Washington
state is not sharpened by partisan disagreements.
Neither Democratic U.S. Senator Patty Murray nor her
Republican rival, Dino Rossi, has taken a stance on the state
tax issue, instead focusing on broad themes like federal
funding of the Wall Street bailout.
Revenue raised under the state's I-1098 proposal, estimated
at about $2 billion a year, would go to what backers call
"middle class tax relief" -- education and healthcare. State
property taxes would drop 20 percent and small business taxes
are eliminated under the plan.
Heavy reliance on state sales taxes means those with low
incomes pay a much greater share of their income in taxes
compared with wealthier people, according to a state tax
After Gates Sr., unions are big backers. Proponents use the
fairness argument to make their case.
In Washington state, the unemployment rate is slightly
below the national rate at 8.9 percent. Its budget gap is seen
growing by an additional $1.4 billion through June 2013,
leading the governor to order state agencies to make spending
cuts of about 6.3 percent.
Opponents of the measure say mistrust of government helps
them make their case, as they warn the state legislature could
in two years extend the tax to lower income groups.
"We know that people have that fear of an income tax," said
Mark Funk, a spokesman for an anti-tax group. "It doesn't
matter whether they are blue or red or independent."
The anti-tax side also say the state's lack of an income
tax attracts business and jobs, echoing points made by
congressional Republicans that high taxes can stall economic
"As an employer, we're concerned that I-1098 will make it
harder to attract talent and create additional jobs in
Washington State," Microsoft said in a statement.
Those who follow state initiatives say backers typically
need to crack 50 percent support preceding a vote to win.
"I don't think it's going to pass because it is too radical
a shift," said Justin Marlowe, assistant professor at the
University of Washington's school of public affairs.
"Quite frankly, I think people have a lot of pride in the
fact that Washington state doesn't have an income tax."
(Additional reporting by Laura Myers in Washington state and
by Jim Christie and Lisa Lambert in Washington; Editing by