High earners tax the rich income council pub hearing 061417 hayat norimine k4mlha

Supporters for the city's proposed income tax attend a public hearing at City Hall on June 14, 2017.

One thing was clear at the city council's two-hour public hearing on Seattle's proposed income tax Wednesday, where a crowd of supporters spoke in favor of the tax—while the reasons varied, supporters (and that included high earners) came from all kinds of backgrounds.

Council member Kshama Sawant, who ran in 2015 on the promise of a high-earners' tax, said the city was making history. 

"This is incredible, and it comes on the heels of the sustained movement that we have been building," Sawant said. 

Council members are aiming to vote on the tax in July—here are some of the basics you should know. 

Who would get taxed? Single filers would face a 2 percent tax on income exceeding $250,000; for joint filers, exceeding $500,000. The city estimates that the tax would apply to less than 5 percent of the city's households. (Council member Lisa Herbold said it's about 8,500 taxpayers.) 

I'm making above $250,000. How much would I pay? The tax would affect only income in excess of $250,000. So if you have a salary of $275,000, $25,000 of your income would be taxed, amounting to $500 owed (0.18 percent of your income). An annual income of $1 million would amount to $15,000 owed (1.5 percent of your total income).

How soon would the tax get enacted? Officials are expecting it to be challenged in the Supreme Court, so it'll likely take at least a couple years if the city is successful in the legal fight. 

What exemptions are there? Any revenue, wages, or gains that come from outside the city won't be taxed, as well as income that’s already been taxed by state or local jurisdictions. 

Why is Seattle doing this? According to a study by the Institute on Taxation and Economic Policy using 2015 data, the poorest 20 percent of the state—less than $21,000 in annual family income—pay 16.8 percent of their income to taxes. The most wealthy 1 percent—$507,000 or more—pay only 2.4 percent.

That makes Washington state the most regressive state and local tax system in the country, the study says. (The higher the income, the lower the percentage of income goes to taxes.) Only seven states currently don't have an income tax. 

So why is anyone opposed to this? Republicans quickly point out that people outside of Seattle don't want an income tax. Last time advocates tried to pass a statewide measure in 2010, 64 percent of voters opposed it.

But it's not just conservatives who are weary about the city's income tax. Some have concerns about the impact on Seattle's economy and draw for new companies; though council members argue there's no evidence to support that an income tax causes businesses to leave town.

Others support a statewide income tax, but not a city income tax—because there are a lot of complications involved with the city creating its own infrastructure to audit and collect this tax. That can get complicated fairly quickly. Income tax advocates like Trump Proof Seattle members are aiming for a statewide income tax in the long run. 

Why hasn't anything changed at the state level? In the legislature, it's a nonstarter with Republicans holding the majority in the Senate. Statewide measures put to the voters have also failed—and part of that is because voters know the state Supreme Court ruled it unconstitutional.

What will the legal fight look like? First it'll be in the King County Superior Court, then likely the Court of Appeals. Seattle officials and Trump Proof Seattle want the city's income tax to get challenged all the way up to the Supreme Court. (More on this here.)

Attorneys say the state law barring "net income," and the fact that there's no explicit state law that gives cities the right to a local income tax, will be more of an obstacle—judges will look at state statutes first—before judges even look at constitutional law. Some attorneys have reason to believe the Supreme Court would reverse their narrow, 5-4 ruling in 1933 that an income tax is unconstitutional; Washington state now holds the minority view. 

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