Seattle City Council Approves Income Tax on Rich 0

{By Robert Pannier, Tellus Managing Editor}

The Seattle City Council approved a tax on Monday that is specifically aimed at the wealthiest residents of the Emerald City. In a unanimous vote, the council approved a 2.25 percent tax on those individuals who earn more than $250,000 or couples earning more than $500,000.

The tax will likely bring in an additional $140 million in revenue for the city and could be used to help to pay for such services as public transit or to lower property taxes. Other uses for the funds will likely include making housing more affordable, helping to reduce carbon emissions, and replacing federal funds that are expected to be reduced.

City Councilwoman Lisa Herbold, one of the co-sponsors of the ordinance, believes that it will be a boon for the middle class in the city. “The middle class is being squeezed as well. And one of the reasons is our outdated, regressive, and unfair tax structure.”

Washington is one of seven states in the country that does not charge a tax on personal income. The Seattle tax is an attempt to change the state’s regressive tax system, but would only apply to the income above the threshold. Therefore, a person earning $260,000, would only be charged the tax on the $10,000 that was over the threshold value.

The new tax is expected to face stiff opposition, not only because state law prohibits such a tax, but also because of case law that brings the law into question. In 1984, the Washington state legislature passed a law that prohibits any county or city from imposing any form of tax on net income. The Seattle ordinance appears to be a direct violation of this prohibition.

In addition, Washington has a history of opposing graduated income taxes. In the state, income has long been viewed as property, and the taxing of income has been viewed as unconstitutional, especially when the tax is not being applied uniformly, as is the case with the Seattle law.

Despite these obstacles, Seattle Mayor Ed Murray is confident that the city will prevail in any legal challenge. “We welcome that fight,” a confident Murray declared, adding “it won’t just be Seattle that’s doing a progressive income tax,” if the city prevails.

The tax proposal gained momentum when the state’s budget was recently released. To afford increased costs for schools, property tax on many homes in the state was increased to pay for the short-fall when federal funds for education decreased. Proponents hope this tax will help to reduce the property tax hike for many families living within the city.

Tax ideas like this are not new in Washington. In 2010, voters soundly defeated an initiative that would have imposed a tax on those who earned more than $200,000 a year. The proposal was defeated by better than a two-to-one margin.

Seattle has become one of the fastest growing cities in the country, primarily because people are moving to the city to join giant technology firms that have found Seattle a great place to set up their corporate headquarters, primarily because they are not required to pay income tax. The concern for some, including former Microsoft CEO Steve Balmer, is that the new tax could create an unfavorable climate for business.