Anywhere else in the state and a city income tax would've been controversial.
In Seattle, though, council members on Monday unanimously passed the legislation that would spur a legal fight in the state Supreme Court and, if it passes muster, enact a 2.25 percent tax on income above $250,000 a year. Enthusiastic applause and cheers from advocates—who filled the city council chambers to capacity—followed the vote, and only one person who opposed the tax spoke at the public hearing. Shortly after the vote, The Stranger reported, state GOP chair Susan Hutchison held a press conference that was swarmed by income tax supporters chanting, "Tax the rich."
A simple amendment by Lorena González, however, did end up sparking some controversy when it pitted council member Kshama Sawant against Lisa Herbold, who worked on the income tax bill together. The sticking point? Adding "the business and occupation tax rate" among the list of regressive taxes that the city could lower with additional income tax revenue.
González pointed out that the business and occupation tax, like the state's other taxes, disproportionately impacts small businesses; corporations that make $1.5 million a year pay 0.7 percent of their income toward sales and excise taxes, while businesses with $11,900 in income a year pay 4.8 percent.
"I think we can all agree that that is an upside down system, and it's not fair that very, very large corporations pay only 0.7 percent into the system while our beloved small businesses bare the brunt of that particular structure," González said.
The crowd clapped in support of her amendment—until Sawant argued that the language in the amendment doesn't specify that it's trying to make the B&O tax less regressive.
Though Sawant said she does want to make the business and occupation tax more progressive, she also argued that a business and occupation tax is "not a regressive tax" because it only taxes businesses as opposed to the working class. (By definition, a regressive tax is one that affects low earners more than high earners.) Ultimately the amendment still passed in a 6-3 vote, with Bruce Harrell and Debora Juarez also opposed. Here's what González's amendment changed (underlined):
"All receipts from the tax levied in this Chapter 5.65 shall be restricted in use and shall be used only for the following purposes: (1) lowering the property tax burden and the impact of other regressive taxes, including the business and occupation tax rate; (2) addressing the homelessness crisis; (3) providing affordable housing, education, and transit; (4) replacing federal funding potentially lost through federal budget cuts, including funding for mental health and public health services, or responding to changes in federal policy; (5) creating green jobs and meeting carbon reduction goals; and (6) administering and implementing the tax levied by this Chapter 5.65."
With another estimated $140 million a year in revenue (if the income tax gets enacted), the bill gives council members a number of options as to where they want to put that money; Sally Bagshaw told the public on Monday that she wants the money to first go into reducing the sales tax, despite "the uphill battle." Given how broad the uses are right now, some have also raised concerns to council members about seeing that money go into the general fund without accountability.
After someone challenges the income tax, the next step is for the bill to go through the King County Superior Court and eventually the Supreme Court.
In the meantime, the fiscal note estimated a one-time payment of $10 million to $13 million for the IT system to begin tracking tax returns. Herbold said she's not convinced of those numbers, though, given that the city already has some of that system in place; she said she wants to work with the budget director to keep costs at a "bare minimum" while the legislation is still getting challenged.
Several council members made comments about the long-term goal—a statewide income tax—with the city income tax as the first step to getting there.
"This is a big step forward in Seattle, but it's also a big step forward in our state," Herbold said. "In this city, support for tax fairness is increasing, and I hope that that continues throughout the state."
Updated July 10, 2017, at 5:49pm: This post mentions the press conference held by the state GOP chair.