The Seattle City Council Finance Committee heard public testimony on a proposed tax on high-income earners. Questions include whether it’s constitutional and whether the city has the expertise and staff to become a mini-Internal Revenue Service.
Waving signs that said “Tax the Rich,” dozens of supporters of a tax on high-income residents turned out at a Seattle City Council Finance Committee hearing Wednesday and testified in support of a measure that would create the state’s first local income tax.
Many were advocates for the homeless who urged the council to redirect the money raised by the proposed tax to ending the homeless crisis in the city. Others pointed to the city’s escalating sales and property taxes and noted that they hit poor residents the hardest.
“It’s time for the wealthy to pay their fair share. We need tax justice, and we need it now,” Susan Russell, a Real Change vendor, told the council.
Ned Friend, who said he works for a local technology firm, responded to criticism that a high-earner tax will stifle business.
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“What really makes an unfavorable business climate is tents lining highways and an underfunded education system,” he said.
A lone Republican ventured into the hearing and called the “tax-the-rich” rhetoric divisive and the proposed legislation itself unconstitutional.
“I respectfully ask the council to permanently shelve the issue,” he said.
Under the proposal introduced by council members Lisa Herbold and Kshama Sawant, Seattle residents would pay a 2 percent tax on annual income above $250,000. Married residents filing their taxes jointly would pay the tax on income above $500,000.
Middle-income Washington households pay an average of 10 percent of their income in state and local taxes while those with incomes above $500,000 pay a little more than 2 percent, according to the Institute on Taxation and Economic Policy. Those earning less that $21,000 pay the highest share, almost 17 percent.
Critics of the proposed income tax say the measure does nothing to lower existing taxes and could hurt innovation and investment in the city. Some also question whether the city has the expertise and staffing to become a mini-Internal Revenue Service.
Herbold, in brief remarks before the public testimony, noted that the city’s Finance and Administrative Services department currently administers taxes on tens of thousands of businesses. She said the city’s estimate is that about 8,500 people would pay the new high-income tax.
The city does not yet have an estimate on what it would cost to administer the tax.
The City Council estimates it would raise about $125 million annually and says fewer than 5 percent of the city’s households would pay.
If approved, the income tax faces an almost certain legal challenge. The state constitution requires taxes to be uniform, which means a flat tax could be enacted statewide, but not a graduated one. Additionally, the Legislature in 1984 barred counties and cities from taxing net income.
A statewide initiative in 2010 that would have established an income tax on individuals earning more than $200,000 and on couples earning more than $400,000 failed, but Seattle voters supported the measure by 63 percent.
The tax was first proposed earlier this year by a coalition of labor, environmental and social-justice organizations under the name Trump Proof Seattle. John Burbank, executive director of the Economic Opportunity Institute, one of the coalition founders, said that while the city does not have legal authority to change the state tax system, a Seattle income-tax ordinance could trigger a legal challenge that would force the State Supreme Court to revisit the question of whether a progressive income tax is constitutional.
“Seattle can take the lead in dismantling a century-old, discriminatory tax system that weighs heavily on low-income and working-class residents,” Burbank said before Wednesday’s hearing.
But critics say the measure could hurt Seattle’s booming economy.
“Having no income tax encourages innovation and high-tech investment. It also welcomes high-wealth people who lead these cutting-edge innovations,” said Paul Guppy, vice president of the Washington Policy Center, a free-market-oriented think tank that released a statement in advance of the committee hearing.
Guppy said the center is all for lowering regressive taxes, but he said the income-tax proposal doesn’t eliminate any existing taxes.
“We’d like to see the city better manage the revenue they already receive,” Guppy said.
According to the draft ordinance, revenues from the income tax could be used for: lowering the property-tax burden and the impact of other regressive taxes; replacing federal funding that may be lost by budget cuts; providing public services such as housing, education and transit; creating green jobs and meeting carbon-reduction goals; and implementing and administering the new city income tax.