Seattle Council votes to pursue city income tax on high earners
Seattle took its first step Monday toward enacting an income tax, as the City Council voted unanimously to approve a resolution drawn up by Councilmember Lisa Herbold and others.
Herbold’s resolution, sponsored with Council President Bruce Harrell, expresses the city’s intent to adopt “a progressive income tax targeting high-end households” by July 10.
With a progressive tax, households with the highest incomes would pay the highest rates.
“We’re trying to force the conversation because it’s the right thing to do,” Harrell said, adding, “Make no mistake about it, the needle is being moved.”
The resolution leaves undetermined several key details: what type of household income would be taxed, which households would be considered high-end, at what rate the income would be taxed, how the revenue from the tax would be spent and how Seattle would go about collecting it.
Despite the unknowns, the resolution carries weight. Supported by Mayor Ed Murray, it sets up the council to pass an ordinance actually enacting the tax.
The resolution says the council will begin considering such an ordinance by May 31, with the goal of passing it in July.
The story likely won’t end there, because a Seattle tax on personal income would almost certainly be challenged in court.
The state Constitution requires taxes to be uniform within the same class of property, and the state Supreme Court has in the past ruled that income is property.
Furthermore, the state Legislature passed a law in 1984 prohibiting counties and cities from taxing net income.
Those are two reasons why there are no existing income taxes on individuals in Washington, locally or statewide.
Proponents of Seattle enacting an income tax say today’s state Supreme Court could interpret the Constitution differently, and the city may attempt to sidestep the 1984 law by taxing a type of income other than net income.
The resolution acknowledges the likelihood of a court challenge, saying Seattle “can pioneer a legal pathway and build political momentum” for statewide change.
And it says the primary consideration in deciding the details of the ordinance will be legal viability.
“We really want the strongest proposal we can design,” Herbold said Monday.
The resolution says action is overdue because Washington’s tax code is the most regressive in the nation, due to a heavy reliance on sales and property taxes that hit poorer people harder.
Households making below $21,000 paid 16.8 percent of their income in state and local taxes in 2015, while households with incomes above $500,000 paid only 2.4 percent, the resolution says, citing the Institute on Taxation and Economy Policy.
“Our upside-down tax system deepens poverty, diminishes opportunity for low- and middle-income families, disproportionately harms communities of color, hinders efforts toward establishing a more equitable city and protects and reinforces the privilege of the wealthy,” the resolution says.
Washington voters have several times rejected proposals to tax individual incomes, most recently last year, when an Olympia-only initiative for a wealthy-households tax failed, and in 2010, when a statewide initiative for a high-earners tax was defeated.
The 2010 initiative did pass among Seattle voters, with 63 percent backing it, the council’s resolution notes.
“Without progressive revenue tools, Seattle is in a weak position to respond to federal budget cuts proposed by the Trump administration,” the resolution says.
Daniel Goodman reminded the council Monday that some of the country’s more conservative states, such as his native Alabama, have cities that tax income.
“This is not some crazy, left-wing, radical conspiracy,” the Capitol Hill resident. “I really do think that if we really try hard, we can catch up.”
The drumbeat for the city to adopt an income tax began in February, when local nonprofits and labor unions calling themselves the Trump Proof Seattle coalition launched a campaign, casting it as a response to the threat of the city losing federal funding under President Donald Trump.
The coalition initially talked about a 2.5 percent tax on the unearned incomes (capital gains, interest and dividends) of households making more than $250,000 per year and considered trying to qualify an initiative for the November ballot.
Later, Trump Proof Seattle proposed a 1.5 percent tax on gross income above $250,000 per household per year, switching away from unearned income because allies have been pursuing a capital-gains tax at the state level.
That would raise as much $125 million per year, according to council’s resolution.
Nate Friend, an engineer at a large tech company, said he would qualify for such a tax and “be honored” to contribute.
“In my circles, almost everyone feels the same way,” the Green Lake resident told the council. “We love Seattle and want to pay our fair share.”
Rather than qualify an initiative for the ballot, the coalition began lobbying council members to pass an ordinance. And the coalition began holding town-hall events in each council district to drum up support.
Its proposal wouldn’t involve changing how companies such as Amazon are taxed by Seattle. The city has a business-and-occupation tax that’s applied to the gross revenue, not just profits, that companies earn, and that wouldn’t change.
The spotlight on the income-tax issue grew when former Mayor Mike McGinn, in announcing he would run again this year, endorsed the idea of a Seattle income tax.
Later the same week, Murray said he would send an income-tax proposal to the council, and Nikkita Oliver, another prominent mayoral candidate, said she was in favor of such a tax.
Another candidate, Cary Moon, has raised concerns, saying she would prefer to see Seattle act quickly to implement local taxes on property speculation and luxury real estate to supplement a statewide capital-gains tax.
Herbold says she worked on Monday’s resolution with Trump Proof Seattle, Murray’s office and City Attorney Pete Holmes, and the resolution says those parties will work together on the subsequent ordinance.
It says the revenue from the tax could be dedicated to lowering more regressive taxes, replacing funding cut by the Trump administration, and paying for public services such as housing, education and transit.
Councilmember Tim Burgess on Monday suggested that a robust personal income tax could allow the city to eliminate its sales and business taxes.
But Councilmember Kshama Sawant said a better choice would be to keep the business tax while charging large companies more and small companies less.
“We are against more taxes on regular working people. We are talking about taxing the rich,” Sawant said.
The resolution recognizes that Seattle would be the first and only entity in Washington with an income tax and that the city would need to “establish an administrative mechanism to ensure the accurate and enforceable collection” of the revenue.
Washington, D.C., a city about the same size as Seattle, has an income-tax collection and enforcement division with more than 200 employees and a budget of more than $30 million.
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