Seattle City Council Votes to ‘Tax the Rich’

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By Paul Shukovsky

Seattle’s City Council enacted an ordinance levying a municipal income tax on high-earning residents that is likely heading to court.

The bill (CB 119002), unanimously approved July 10, imposes a 2.25 percent tax on annual income over $250,000 for single filers and $500,000 for joint filers beginning Jan. 1, 2018.

“Our goal is to replace our regressive tax system with a new formula for fairness, while ensuring Seattle stands up to President Trump’s austere budget that cuts transportation, affordable housing, healthcare, and social services,” Mayor Ed Murray (D) said in a prepared statement issued moments after the bill passed.

In Washington, which has no income tax, politicians across the political spectrum have acknowledged the state’s reliance on sales tax has lead to a deeply regressive tax structure. In economically booming Seattle, the influx of well-paid techies to hometown companies like Amazon.com Inc. is fueling an upward spiral in the cost of housing and bumping up property taxes that threatens the viability of the middle class. An exodus of lower-income residents is already underway.

The tax is expected to generate $140 million in new annual revenue. According to an amendment adopted just before passage, the revenue will be used for purposes including “lowering the property tax burden and the impact of other regressive taxes, including the business and occupation tax rate.” Other purposes include addressing homelessness, providing affordable housing, responding to changes in federal policy, and meeting carbon-reduction goals.

However, the City Council is bracing for a lawsuit that was long expected. Council members Lisa Herbold and Kshama Sawant, prime sponsors of the bill, said the measure was drafted to withstand a legal challenge.

“The fight is far from over,” Sawant said. “If you read the op eds from the big business representatives and strategists, they make it clear that they intend to fight this in the courts.”

Litigation Looming

The gallery was packed with members of the Trump-Proof Seattle coalition—some hoisting “Tax the Rich” posters—which brought the measure to the council and has been closely involved in its drafting.

The ordinance is the progeny of a decades-long effort to enact a state income tax. However, both the coalition and the council’s left-of-center members have linked the proposal with the political agenda to resist proposed budget cuts by the Trump administration.

The coalition has hoped to leverage the Seattle tax to overturn state Supreme Court precedent that has long been a stumbling block to income taxes—court rulings stretching back to the 1930s have equated income with property that must be taxed at a uniform rate under the state constitution.

Not long after the vote, the Freedom Foundation announced it “is prepared to challenge the action in court—hopefully with a coalition of other freedom-minded organizations.” The foundation is well known for legal battles it has waged against public-sector unions.

“Liberals have long wanted a statewide income tax to fund their Big Government programs and hire thousands more unionized public employees,” Freedom Foundation CEO Tom McCabe said in a July 10 statement. “It’s manifestly illegal and unconstitutional in Washington to impose a tax that treats people differently based on income level.”

Seattle Prepared to Defend

“Make no mistake, this poorly conceived bill is not a tax on the rich. It is a thinly veiled attempt to test the state constitutional limits of an income tax for all,” according to a July 10 release from the Washington State Republican Party. “The true intent is expensive litigation which takes the case to the State Supreme Court. All Seattle residents will have to cover the multi-million dollar cost of the bill’s legal defense.”

Sawant denounced the Washington State Republican Party’s release, saying “income tax for all” is the city council’s real goal. “As far as I’m concerned, the goal is absolutely to tax the rich and not working people,” she said.

Council bills typically are drafted by a staffer and then vetted by an attorney. However, the municipal income tax bill was drafted by the city attorney’s office with the assistance of outside counsel hired specifically for the purpose of creating an ordinance that could withstand legal challenge, a council staffer who worked on the legislation told Bloomberg BNA after the vote.

Seattle City Attorney Pete Holmes declined through his assistant to talk about legal strategy. Outside counsel for the city, Paul Lawrence of Pacifica Law Group LLP of Seattle, told Bloomberg BNA after the vote that the issue of equating income with property has been addressed in other states and could be persuasive to Washington justices.

To contact the reporter on this story: Paul Shukovsky in Seattle at PShukovsky@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

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