Washington state votes down new tax on wealthy

SEATTLE (Reuters) - Washington voters knocked down plans for a state income tax on the wealthy intended to fund education and health spending, ending a fight pitting Bill Gates against other Seattle tech billionaires, and signaling that Americans’ appetite for progressive taxes is low.

A volunteer (R) hands a sticker to an early voter for the U.S. midterm elections at a polling place in Washington November 2, 2010. The sticker is given to voters after they have submitted their ballot. REUTERS/Jason Reed

The plan devised by the father of the Microsoft Corp co-founder to slap a 5 percent tax on earnings over $200,000 -- Initiative Measure 1098 -- was rejected by 65 percent of voters, with almost two-thirds of precincts reported.

The result is a boon for the anti-tax Tea Party movement and suggests Americans may be in the mood to extend tax cuts introduced by former President George W. Bush even for the wealthiest citizens. It also signals that Americans are unwilling to accept higher taxes as a way of balancing state budgets ravaged by the recession.

It is a stinging defeat for Bill Gates senior, who put $600,000 of his own money behind the campaign and also for his son, the world’s second richest person, who let it be known he would vote for the measure.

The vote is the fourth failure to introduce a state tax in Washington in the last 70 years and leaves the state as one of only seven without one.

Although the new tax would have affected fewer than 70,000 people out of the state’s 6.7 million residents, an opposition campaign run by an organization called Defeat 1098 persuaded voters that the tax on the wealthy would be extended to lower earners.

Major backers of Defeat 1098 include Microsoft Chief Executive Steve Ballmer, who contributed $425,000 to the campaign, Microsoft co-founder Paul Allen and founder and CEO Jeff Bezos.

Microsoft, Boeing and Alaska Airlines, all major employers in the state, also contributed to the opposition campaign, fearing that a tax on high-earners would hurt their ability to lure talented workers to the state.

Texas Governor Rick Perry recently seized on the issue to invite top businesses in Washington state to relocate to Texas, which does not have an income tax.

According to supporters of Initiative 1098, 1.2 percent of the state’s population would have paid more tax, raising an additional $11.2 billion over five years to be funneled to education and healthcare services.

The measure, which also called for a 9 percent tax for earnings over $500,000, would have cut state property taxes by 20 percent and eliminated a separate tax for many small businesses.

Nine states have enacted high-earner taxes since 2003, although one subsequently repealed the tax, according to the Center for Budget and Policy Priorities.

Voters in neighboring Oregon earlier this year bucked their history of rejecting tax increases and approved ballot measures raising corporate taxes and income taxes on the wealthy.

Reporting by Bill Rigby; editing by Chris Wilson.