Oct. 28 (Bloomberg) -- A battle over a proposed Washington state income tax is pitting Microsoft Corp. co-founder Bill Gates, the richest American, against some of his fellow billionaires.
Gates and his father, Bill Gates Sr., support an initiative to tax the wealthiest 1.2 percent of state residents, which would raise $2 billion a year for education and health-care programs shrunk by budget cuts. The state now collects no personal income taxes.
The proposal has drawn criticism from Microsoft and other large state employers, while billionaires including Microsoft Chief Executive Officer Steve Ballmer, Amazon.com Inc. founder Jeff Bezos and wireless entrepreneur Craig McCaw are all funding a $6.3 million campaign to defeat it. Opponents say a tax will make it harder to lure business to the state and that the levy will be eventually expanded to other income levels.
“This is the Trojan horse for going after an income tax on the middle class,” said Ken Fisher, 59, the billionaire CEO of Fisher Investments Inc. in Woodside, California.
About 325 of the fund manager’s 1,200 employees are based in Vancouver, Washington. Fisher previously said he may move the firm’s headquarters to Washington or to another state without an income tax. He said that decision hinges in part on how Washington voters respond to the ballot proposal, known as Initiative 1098.
Debate over the state tax mirrors a national one over growing income inequality. As the recession pushed U.S. incomes down last year, America’s highest earners -- 74 people who earned more than $50 million -- saw their pay more than quintuple to a record $519 million each, government data show.
The Obama administration has cited such inequality to make a case that the federal government should end tax cuts enacted in 2001 and 2003 for couples earning more than $250,000. Republicans say any tax increase will stifle job creation.
The Washington plan is one of 159 referendums on ballots in 36 states on Nov. 2, according to the Initiative & Referendum Institute at the University of Southern California. The measure would tax income above $200,000 for individuals and $400,000 for couples, while cutting the state portion of property taxes by 20 percent and eliminating a tax on small businesses.
Since 2008, eight states including neighboring Oregon have raised levies on high-income residents, according to a May 18 report by the Manhattan Institute in New York.
Washington, which ranked No. 13 among the 50 states in per-capita income in 2008, relies on sales taxes as its principal revenue source. The recession sapped consumer spending, contributing to a projected $520 million deficit through June. Governor Christine Gregoire last month ordered a 6.3 percent cut in state spending.
Support for Education
The cutbacks may eliminate as many as 9,000 slots at community and technical colleges, close a prison and lower funding for three of four school districts that get extra state money, Gregoire has said. She estimates the state has reduced spending by $5.1 billion in three years.
“We are not supporting our education institutions in a way that’s producing the results that we want for our young people,” Gates Sr., 84, said in an interview.
Money raised from the tax -- 5 percent on individual income above $200,000 and 9 percent above $500,000 -- would increase teachers’ salaries, support early learning, reverse cuts to state universities and fund long-term care for seniors, he said.
The retired lawyer and philanthropist has been the public face of the proposal. One television commercial made light of the idea backers want to soak the rich by showing Gates Sr. dropped into a carnival dunk tank.
Father and Son
Gates Sr. put $600,000 into the $6.4 million campaign, state records show. Labor groups including the National Education Association, the Service Employees International Union and the Washington Federation of State Employees contributed about $4 million.
The elder Gates has said his son, William H. Gates III, whose fortune was estimated at $54 billion by Forbes magazine in September, the most in the U.S., will also vote for the initiative. John Pinette, a spokesman for the younger Gates, confirmed his support.
Current Microsoft CEO Ballmer contributed $425,000 to the campaign to defeat the measure, Microsoft co-founder Paul Allen gave $100,000 and Microsoft General Counsel Brad Smith added $10,000. Billionaire McCaw put in $2,500, records show.
More for Money
Opponents say school advocates should think harder about ways to improve education. The state Legislature has already increased kindergarten-through-high school spending by 70 percent in the past 12 years, said Matt McIlwain, managing director at Madrona Venture Group in Seattle.
“Why can’t we get more out of $12,746-per-student per year?” he said. “That’s well north of the average private school tuition in this city.”
The tax measure was trailing in an Oct. 15 KCTS/KPLU/Washington Poll, with 42 percent in favor and 51 percent opposed. The poll had a margin of error of 4.3 percentage points.
Billionaire Fisher is so wary that he says he won’t move his firm’s headquarters to Washington even if voters narrowly reject the measure. He wants to see a defeat by at least 5 percentage points to discourage organizers.
“If it gets within 5 percent of passing this year, they’ll bring it back with a vengeance,” Fisher said.
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