Seattle City Council approves income tax for high earners

SEATTLE — The Seattle City Council approved a city income tax on Monday targeting high-income households.

The council voted 9-0 for the ordinance, which would establish an income tax on individuals in Seattle earning more than $250,000 annually and married couples filing jointly who earn more than $500,000 a year.

Here's what to know now.

Why city leaders call it a progressive tax

According to a report a council committee in May, Seattle has the most regressive state and local tax system in the country. A regressive tax means the rate goes down as personal incomes go higher; lower income earners pay higher tax rates than the highest earners.

The income tax should move Seattle toward a more progressive tax system because it is intended to reduce regressive taxes such as property taxes, and finance priorities like addressing the homelessness crisis and offsetting federal budget cuts, according to the council.

How it was passed

Mayor Ed Murray made comments in the spring about the idea of proposing a city income tax on "high-end" households and high earners. It came after threats from the Trump administration that

After the city council unanimously supported a resolution in favor of a Seattle income tax in May, Socialist Seattle Councilwoman Sawant introduced actual legislation for the proposal in mid-June. Councilmember Lisa Herbold is co-sponsoring the legislation and Murray endorsed it.

Last week, a council committee passed it, and it went for a full vote on Monday.

The decision comes a couple of weeks after the state's recently-passed $44 billion budget. The budget is getting criticism from King County financial analysts who believe it largely comes at the expense of Puget Sound residents who will see large tax hikes and limited increases in local school funding.

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How the taxpayers are impacted

It creates an income tax of 2.25 percent all income over $250,000 for an individual and $500,000 for a couple.

For example, if an individual makes $300,000, it doesn't tax the entire $300,000, just $50,000 of it. So the city would get $1,125.

What the tax funds would be used for

The council estimates that tax would raise about $140 million annually and says fewer than five percent of the city’s households would pay.

The legislation requires the funds be used to:

• lower the property tax burden and the impact of other regressive taxes;
• replace federal funding currently received by the City that may be lost due to federal budget cuts;
• provide public services such as housing, education, and transit; creating green jobs and meeting carbon reduction goals; and,
• implement and administer the tax.

Legislative obstacles for the tax

It’s illegal for cities to impose an income tax under the Washington state constitution, so if the tax will no doubt be challenged and likely reversed.

If the council can get the court’s approval, it can move forward with a progressive income tax.

State Rep. Brandon Vick told KIRO Radio that he wants to pass a bill that will shut down any legal attempt that Seattle can take toward an income tax. He’s not alone. Republican state Sen. Phil Fortunato has his own companion bill to Vick’s.

Vick and Fortunato efforts would have blocked income tax attempts by any Washington city or county from going forward.

But Vick's bill died after being introduced in each of the three special sessions. Same with Fortunato's bill.

What supporters say

Proponents of the tax say it would create a more even playing field in a city that's becoming too expensive for low- to middle-income taxpayers to afford.

Dozens of voters spoke during a hearing before the council vote on Monday, and many have participated in the "Tax the Rich" movement.

Sawant built momentum behind that movement.

"For decades, poor and working class people in our state have paid far more of their income in taxes than the super-rich. Now with Trump's billionaire-backed right-wing administration threatening massive tax breaks for corporations and the super-wealthy alongside vicious cuts to social programs for ordinary people, thousands are getting organized. We need to use this momentum by winning a tax on Seattle's rich this year," she wrote in a blog post.

When the tax passed on Monday afternoon, the city hall chamber burst into applause from supporters of the tax.

What opponents say

The "tax the rich" narrative has another side.

Critics say the majority of the wealthiest taxpayers in Seattle are small-business owners, managers and professionals with incomes of $250,000 or more.

Some believe a progressive tax would create an unfriendly business climate and could drive companies away or prevent new ones from forming.

KIRO 7 News talked to former Microsoft CEO Steve Ballmer, who said in May that an income tax would hurt Seattle.

'There would be fewer jobs here with an income tax than without an income tax,” Ballmer said.

Ballmer believes tech companies would have to pay higher wages to maintain their competitive advantage over California, which has a 14 percent income tax.

Getting an infrastructure for tax will be challenging

KIRO 7 wanted to know about the challenges of implementing a Seattle income tax.

We asked Seattle University Taxation Professor Susan Weihrich to take a look at the draft ordinance with us.

Weihrich noted there only seven states that don't have an income tax, and our search found none them have cities that levy their own income taxes like Seattle would.

"You're going to have to have people who audit tax returns, because there's not already that structure in place because we don't have a state income tax,” said Weihrich.

Washington DC collects an income tax on its own. The tax agency's budget is $30 million.

“The major challenge for the city is getting the infrastructure in place so they can collect the tax fairly," said Weihrich.

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