City Council

Seattle Income Tax Heads to Council for a Vote

The city council approved the bill out of the finance committee on Wednesday.

By Hayat Norimine July 5, 2017

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Seattle council members on Wednesday cleared the path for the city income tax proposal to make it to a full council vote next week, meeting council member Lisa Herbold's July 10 goal

Council members in the Affordable Housing, Neighborhoods, & Finance Committee, chaired by Tim Burgess, approved the legislation with the eight amendments that passed last week. That included Rob Johnson's change to raise the tax from 2 percent to 2.25 percent of single tax filers' income above $250,000 a year.

If the income tax passes legal muster, it's estimated to generate $140 million a year in revenue for the city by 2019 and aim to fix a regressive tax system that disproportionately affects low-income households. But the implementation also comes with a hefty price to create, essentially, the equivalent of a new city department: The fiscal note estimates a $10 million to $13 million one-time cost for the IT system to begin tracking tax returns, an investment Seattle would have to make before any new revenue comes in. And a chunk of that revenue would go toward the ongoing annual cost of $5 million to $6 million to fund up to 50 new city employees for IT and enforcement.

As the bill stands, the city could use the revenue for a number of purposes, including reducing regressive taxes. And it sounds like that would first come in the form of smaller property taxes—which comes at a good time, Herbold said, now that the state's new budget includes an estimated $460 a year in property taxes for Seattle. Burgess said at the committee meeting Wednesday that adjusting sales taxes wouldn't be "impossible," but it would be complicated since some of that money goes to King County.

"We have less options there than we do with the property tax," Burgess said. Kshama Sawant pointed out that sales taxes are more regressive.

"Bottom line is whatever distribution of the use of tax revenues, it is going to be better than the situation we have today," Sawant said. 

According to a study by the Institute on Taxation and Economic Policy using 2015 data, Washington state has the most regressive tax system in the country. (The higher the income, the lower the percentage of income goes to taxes.) The poorest 20 percent of the state—less than $21,000 in annual family income—pay an estimated 16.8 percent of their income to taxes. The most wealthy 1 percent—$507,000 or more—pay only 2.4 percent. Seven states don't have an income tax, and the Trump-Proof Seattle coalition is hoping to start with the city as a challenge to the state Supreme Court decision in the 1930s. Advocates say they want to start from there, and eventually aim for a statewide income tax

Johnson's amendment to increase the tax to 2.25 percent adds an estimated $15 million annually—raising the revenue from $125 million to $140 million—to give "an additional cushion" for potential federal cuts to health care. (Cuts to Medicaid would impact an estimated 50,000-plus city residents.) 

In addition to the tax's implementation and reducing regressive taxes, the bill also allows the city to use the new revenue for homelessness and affordable housing, transit, lost federal funding through budget cuts, mental and public health, civil legal aid for immigrants, and carbon reduction goals. 

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