Seattle City Council members have released details of a proposed income tax on high-income residents.
The proposed legislation, released Monday, would levy a flat 2 percent tax on annual income above $250,000 for individuals and above $500,000 for couples filing joint taxes.
Here’s how it would work:
Let’s say you’re unmarried, living in the city of Seattle, and you’re income is $275,000 per year. You’d have $25,000 of taxable income (the amount that rises above the $250,000 threshold), so you’d end up paying $500 in income tax.
You can follow the same logic for couples filing jointly with an income above $500,000.
Seattle City Council member Lisa Herbold, a co-sponsor of the legislation, said the tax would impact fewer than 5 percent of Seattle’s households and is expected to raise approximately $125 million in the first year.
Herbold said it’s a necessity, in part, because Washington has one of the most regressive tax systems in the nation.
“The people earning the least pay the most as a proportion of their income. So people earning $20,000 a year devote two entire months of their annual pay to their tax bill, whereas the 1 percent pay their annual tax bill in only six days,” Herbold said.
The draft legislation states that revenue from the tax can be used for:
(1) lowering the property tax burden and the impact of other regressive taxes; (2) replacing federal funding potentially lost through President Trump’s budget cuts; (3) providing public services, including housing, education, and transit; (4) creating green jobs and meeting carbon reduction goals; and (5) administering and implementing the tax.
Washington state law prohibits the city from levying a tax on net income. But Herbold said this is a tax on gross income.
“It really gets down to a particular line on your tax return,” Herbold said. She said the ordinance has been written in a way that takes state laws into account.
Despite that, Herbold said the city anticipates a legal challenge if the legislation passes. Opponents of the tax say they also expect the legislation will be challenged in court if it passes.
Paul Guppy is with conservative think tank the Washington Policy Center. He said the income tax is bad public policy and could lead to middle and low-income households being taxed in the future.
He also expressed skepticism that the revenue is needed.
“Sales taxes are above 10 percent, they just imposed a new, regressive soda tax, property taxes go up every year and yet the main message we hear from the city is they never have enough money,” Guppy said.
The proposed tax will be discussed in a committee meeting at 5 p.m. on Wednesday, June 14. The public will be able to give testimony following the discussion.
Herbold said she expects the ordinance to be introduced formally in the council next week.
The city adopted a resolution earlier this year signaling their intent to pass an income tax by July 10.