City of Seattle adopts income tax on the wealthy; legal challenge coming

Seat­tle’s City Coun­cil has vot­ed unan­i­mous­ly to levy an income tax of 2.5 per­cent on high earn­ers, set­ting the stage for a pro­tract­ed legal bat­tle over whether local gov­ern­ments have the author­i­ty to pur­sue pro­gres­sive tax reform on their own.

Only income in excess of $250,000 would be sub­ject to the tax, which would fund:

• reduc­tions in prop­er­ty and busi­ness and occu­pa­tion taxes
• solu­tions to our home­less­ness crisis
• invest­ments in edu­ca­tion, afford­able hous­ing, and transit
• projects that lose mon­ey due to fed­er­al bud­get cuts
• efforts to bring about a just and respon­si­ble tran­si­tion to clean energy

Some pro­ceeds would also be ded­i­cat­ed to admin­is­ter and col­lect the tax. The pro­pos­al is sched­uled to go into effect on Jan­u­ary 1st, 2018.

The legal bat­tle will be well under­way before then. It will like­ly begin in King Coun­ty Supe­ri­or Court in the com­ing days, with an appeal being filed by the los­ing side to the Wash­ing­ton State Supreme Court. The bat­tle is cer­tain to draw a lot of inter­est; we expect a fair num­ber of ami­cus briefs will be sub­mit­ted at both stages.

Because income tax­es are based on abil­i­ty to pay, they are one of the most sen­si­ble types of rev­enue sources. Most states in the Union levy income tax­es (whether on indi­vid­u­als, cor­po­ra­tions, or both), includ­ing Wash­ing­ton’s east­ern neigh­bor Ida­ho, which is among the most con­ser­v­a­tive states in the country.

Wash­ing­ton vot­ers enact­ed an income tax by pop­u­lar vote in the 1930s, but the Supreme Court ruled it could not be col­lect­ed in a ques­tion­able deci­sion that pro­gres­sives have been want­i­ng to over­turn ever since. Repub­li­can Gov­er­nor Dan Evans tried twice to amend the state Con­sti­tu­tion in the 1970s to explic­it­ly give the state the author­i­ty to levy an income tax, but vot­ers would­n’t go along.

Since Evans’ time, no gov­er­nor or Leg­is­la­ture has made a seri­ous attempt to over­haul the state’s upside down tax code. Hav­ing not seen any evi­dence that law­mak­ers are capa­ble of work­ing togeth­er to address the mat­ter, vot­ers across the state have respond­ed skep­ti­cal­ly when asked if they’d sup­port an income tax.

A Novem­ber 2010 ini­tia­tive to levy an income tax on high earn­ers, spear­head­ed by Bill Gates Sr., gar­nered less than 40% of the vote.

Research indi­cates there is plen­ty of sup­port among the statewide elec­torate for an incre­men­tal tax reform approach empha­siz­ing small­er steps, like:

• levy­ing a cap­i­tal gains excise tax
• clos­ing tax breaks that are no longer in the pub­lic interest
• requir­ing cor­po­ra­tions to repay tax breaks and sub­si­dies they pre­vi­ous­ly received if they fail to deliv­er on their job cre­ation promises
• enact­ing a home­stead exemp­tion to make prop­er­ty tax­es fairer
• repeal­ing the loop­hole-rid­den busi­ness and occu­pa­tion tax on gross receipts and replac­ing it with a fair­er solution

Were law­mak­ers to start imple­ment­ing these ideas, it would increase pub­lic trust in gov­ern­ment. More vot­ers would become open to the idea of an income tax.

In Seat­tle, though, the enthu­si­asm already exists, even with­out leg­isla­tive action. Seat­tleites are on record as being in strong sup­port of an income tax. Numer­ous polls have found robust majori­ties in sup­port of levy­ing one, and Seat­tleites vot­ed over­whelm­ing­ly to pass Ini­tia­tive 1098 in 2010, as was point­ed out by the staff run­ning the city coun­cil’s Twit­ter account this after­noon.

Susan Hutchi­son and the state Repub­li­can Par­ty are throw­ing a huge fit, call­ing the city’s ordi­nance uncon­sti­tu­tion­al and ille­gal. That’s amus­ing, con­sid­er­ing all of the uncon­sti­tu­tion­al Tim Eyman ini­tia­tives they’ve enthu­si­as­ti­cal­ly endorsed over the years. The par­ty knew Eyman’s I‑1366 was bla­tant­ly uncon­sti­tu­tion­al when it appeared on the 2015 bal­lot; they urged peo­ple to vote for it anyway.

It remains to be seen if the Seat­tle City Coun­cil’s action today will mean­ing­ful­ly advance the cause of pro­gres­sive tax reform statewide. This ordi­nance may not yield a rul­ing over­turn­ing the hold­ing of that bad­ly rea­soned Supreme Court deci­sion from the 1930s. The Court could just rule that cities don’t have the author­i­ty to levy this kind of tax. They may choose not to reach the under­ly­ing issue. We’ll see.

But if noth­ing else, it’s nice to know that at least at the local lev­el, we have elect­ed rep­re­sen­ta­tives who are will­ing to be bold and cre­ative in an effort to cat­alyze change. That’s what is need­ed in dif­fi­cult, uncer­tain times such as these.