In an unprecedented analysis of IRS data, a local public-policy think tank determined that 51 percent of Seattle tax filers reported income of less than $50,000. And more than half of those folks make less than $25,000.
For all Seattle’s newfound affluence, there are still a whole lot of folks living paycheck to paycheck. That’s no surprise, of course — but here’s some new data that bring this economic reality into sharp focus.
Of the roughly 419,000 tax returns filed in 2014 by city residents, 214,000 — 51 percent — showed an adjusted gross income of less than $50,000.
And more than half of those folks are making less than $25,000.
About the data
“We are careful to make sure that people understand that this is an estimate,” said John Burbank, executive director of the Economic Opportunity Institute (EOI). “There are some caveats, but I don’t think any of them invalidate the numbers themselves.”
Here are those caveats:
• The most recent IRS data are for 2014, and we’ve experienced a rise in income since then.
The EOI calculations are based on adjusted gross income, while the tax measure that the Seattle City Council enacted used total income, which is about 2 percent higher.
• The IRS data are for ZIP codes, but a handful of them straddle Seattle and King County. The researchers weighted the ZIP codes accordingly to get numbers for just the city of Seattle.
• At the ZIP code level, the highest income threshold for IRS tax-return data is $200,000 and higher. But the Seattle income tax only kicks in at incomes of $250,000 for individuals, and $500,000 for married couples. The Seattle numbers above $200,000 were inputted from statewide IRS data, which have higher income thresholds.
The numbers come from a new analysis of IRS data by the Economic Opportunity Institute (EOI), a liberal public-policy think tank based in Seattle. Researchers there used ZIP code-level tax-return data to create a breakdown of reported incomes for single and joint filers in Seattle, with some caveats.
Of those reporting income of less than $50,000, the overwhelmingly majority are single filers — a total of 187,000. Remarkably, that’s more than two-thirds of Seattle’s single population.
To be sure, a sizable chunk of these are likely seniors on a fixed income. Another group is college students who, if they earn a certain amount of money, are required to file. But even if you take these filers out of the equation — not to discount their economic struggles — it still leaves a tremendous number of folks who are wrangling with Seattle’s high cost of living on not much money.
In creating this data, the EOI wasn’t trying to show how many people are struggling to get by. In fact, it was more interested in folks on the opposite end of the income spectrum.
The EOI undertook this research in February as part of its advocacy for an income tax on high earners in Seattle. The data, which the EOI shared with the City Council, also provided an estimate of how many tax filers might be subject to a new tax, and how much revenue that could raise.
“We did a lot of this work in preparation for a discussion of an income tax in Seattle, and helping to move the City Council in this direction,” said John Burbank, executive director of the EOI. “We’ve been working on the need for equitable, progressive taxation for a couple decades now.”
The reason behind the EOI’s efforts is simple. Washington’s tax system relies heavily on sales taxes, which can eat up a big chunk of a small paycheck. It’s largely because of this that we’ve been ranked as having the most regressive taxes in the nation.
Last month, the City Council unanimously approved an income tax of 2.25 percent on total income of more than $250,000 for single people and more than $500,000 for married couples who file jointly. The city estimates the tax will raise $140 million a year, minus costs to set up, administer and enforce it.
According to the EOI’s calculations, about 8,500 Seattle filers would be subject to the tax — slightly more married couples than single people.
Among them are our two candidates for mayor — Cary Moon and Jenny Durkan. I spoke with each about their thoughts on Seattle’s new income tax. One of my questions: Based on your most recent tax return, would you be subject to the tax, if it were in effect?
Durkan, who has a partner but is not married, met the $250,000 income threshold for single filers — though she added with a laugh that she wouldn’t anymore if she’s elected. The salary for Seattle mayor was $193,000 in 2016.
Moon, who is married and files jointly, said that her household income hit the $500,000 threshold last year, but noted that it fluctuates because of her husband’s business, and the couple wouldn’t have been subject to the tax in the three previous years.
Both candidates are emphatic that they support the intent of the measure, and advocate for a statewide income tax.
“I think I should pay more,” Durkan said. “We need to shift more of the burden to those of us who can afford it.”
Moon expressed a similar sentiment: “We would have to pay it, and would be happy to pay it, because it’s the right thing to do.”
Then there’s the question of whether Seattle’s tax, which would go into effect Jan. 1, 2018, can stand up to the upcoming court challenges. Multiple lawsuits have been filed against the measure, which may violate the state Constitution’s requirement that taxes be uniform within a class of property.
“I don’t think it has a very good chance of getting through the legal system,” Moon said, though, regardless of the outcome, she still believes it’s an important step forward.
“We need to be having a conversation around progressive tax sources,” she said, “and income tax is the centerpiece.”
While Durkan also thinks the Seattle tax has a bumpy road ahead in the courts, she feels its chances have improved since the state Supreme Court ruled earlier this month in favor of Seattle’s gun and ammunition sales tax.
“There’s some language in the case which I think gives cities some more latitude,” Durkan said. “I’m more optimistic today than I was two weeks ago.”
Both candidates mentioned other tax reforms, including a capital-gains tax on high earners and changes to the state’s B&O tax to shift more of the burden onto larger corporations. Moon also specified possible changes to the estate tax.
“We need to look at this comprehensively … and we need to partner with our legislators and other cities in our region and in the state,” Moon said. “We’re the most regressive tax state in the country — it doesn’t match our values.”
Durkan called our current tax system unfair — “we need to correct it,” she said — though she conceded that the various tax reforms she wants to push for require approval in Olympia: “The greatest hope for positive tax change comes from moving the (state) Senate from Republican to Democratic control.”
Correction, 8:35 a.m., Aug. 30, 2017: A previous version of this column incorrectly stated the Seattle mayor’s salary. An errant dollar sign was also removed from the graphic of income distribution.