The Affordable Housing, Neighborhoods and Finance Committee held a public hearing June 14 on a draft of an ordinance that, if passed, would implement the state’s first income tax. Councilmembers Lisa Herbold and Kshama Sawant introduced the legislation earlier in the week.
The proposed 2 percent income tax would apply to individuals making more than $250,000 a year and couples that jointly earn more than $500,000.
The council estimates less than 5 percent of residents would pay the income tax, and it would generate $125 million in revenue in the first year.
Individuals would be required to pay the 2 percent tax on any income earned above $250,000 — a single person making $275,000 would have a tax bill of $500. For couples filing jointly, any income in excess of $500,000 would be taxed — a couple that earns $750,000 would pay $5,000.
The Trump-Proof Seattle Campaign, a coalition of more than 45 community groups, labor unions, political organizations and associations, began lobbying for an income tax earlier this year. Leading the charge is the Transit Riders Union.
Katie Wilson, the general secretary for the Transit Riders Union, said this is an important issue for the union.
“We have endorsed and campaigned actively for a number of ballot measures to preserve and expand our transit system, but we have always done so with reservations,” Wilson said. “Because the funding sources are always regressive. It’s, ‘We have to raise the sales tax, we have to raise car tab fees, or property taxes.’ ”
“We are really tired of having to go out in the streets and talk to low- and middle-income people, and say if you want better transit systems, you have to pay higher taxes, when we are already being taxed so disproportionately,” she added.
A 2015 Institute on Taxation and Economic Policy study found the lowest earning residents in the state paid 16.8 percent of their income on state and local taxes, while the highest-earning families paid 2 percent.
In describing the motivation behind the proposals, the bill cites the need for more resources to address homelessness and gaps in educational equity and racial achievement.
Use of revenue from the tax would be restricted to: Lowering property taxes and other regressive taxes; replacing federal funding lost due to federal budget cuts; providing for housing, education and transit; creating green jobs and reducing carbon emissions, and implementing and administering the new tax.
The tax would first be collected in 2019, and apply to income received after January 1, 2018. Only residents that earn enough to pay the tax would be required to file a return with the city.
A few opponents of the tax spoke during the public hearing, urging the City Council to vote down the tax, suggesting instead the council cut costs.
In a news release, the Washington Policy Center, a free market think tank, called the proposal a mistake.
“Having no income tax is an open door to innovation, from high-tech investment to promoting small businesses,” the release states, “and contributes to Seattle’s well-earned world reputation as an exciting and dynamic place to live.”
“An income tax would do nothing to promote fairness, because the regressive burden Seattle officials impose now on working families and the poor would stay exactly the same,” the statement continues.
If approved, the bill would most likely be challenged in court. Currently, a progressive income tax is considered unconstitutional in Washington. The state’s constitution considers income to be property, requiring it to be taxed uniformly. A law passed by the Legislature in 1984 bars counties and cities from levying a tax on net income.
“We believe the city has much broader powers of taxation than is commonly assumed,” Wilson said. “We also believe that today’s state Supreme Court will reverse the decision from the 1930s that equated income with property; we think that is a really antiquated ruling.”
Herbold said the legislation was drafted by attorneys with expertise in this area.
Herbold sponsored a resolution in May, which was later unanimously approved by the City Council, expressing the city’s intent to adopt a progressive income tax, which would target high-income households. The council wants to have the ordinance passed by July 10.
“The Seattle City Council is on the cusp of voting for a tax on the richest people in our city, this is incredible,” Sawant said. “We passed (a minimum wage increase to) $15, that was incredibly important, but we also need to tax the rich, and after we tax the rich, we need rent control in the city.”
The proposal will be discussed at the next committee meeting.
“Regardless if the revenue from this measure goes to transit, it’s about opening up this whole new progressive revenue option,” Wilson added.