Seattle Primes for Court, Trump Fight With Income Tax Plan

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By Paul Shukovsky

The Seattle City Council is gearing up for a fight over its plan to enact “a progressive income tax ordinance” by July.

A resolution passed unanimously May 1 cites a call by an ad hoc, progressive coalition called Trump-Proof Seattle to enact a 1.5 percent tax on adjusted gross income in excess of $250,000 per year, though there are no further details on the structure of the nascent municipal income tax. Unspecified revenue from the tax would go in part toward filling funding gaps created by anticipated Trump administration budget cuts.

Passage would lead to inevitable legal challenges that are expected to end up in the state Supreme Court. The tax is intended to provide a test case in the hopes that liberal justices would overturn a line of decisions going back to the 1930s read to prohibit an income tax in Washington.

“The regressive nature of our tax system is one that is ripe for reform,” sponsoring Council member Lisa Herbold told Bloomberg BNA May 2. And her resolution calls Washington state’s tax code “the most regressive in the nation,” citing a 2015 report by the Institute on Taxation and Economic Policy that lists the state as "#1 of the Terrible Ten.”

Resistance to Trump Cuts

“Establishing an income tax in Seattle will be a really critical step to state-wide tax reform,” Herbold said. And the city understands it will be taking on a court fight to protect an income tax ordinance, she said.

One of the elements of the resolution authorizes the city’s Law Department to consult with external legal counsel as needed. Legal viability of the ordinance will be the “primary consideration” in drafting components of the legislation, the resolution says.

Herbold said work to draft that bill is being done by her office, that of the mayor, the city Law Department and the Trump-Proof Seattle coalition. One of the coalition leaders is John Burbank of the Economic Opportunity Institute, which seeks to promote a broad progressive agenda, including to “pass an income tax in one or more Washington cities to fund local/community investments as a step toward fair and ample state revenue.”

“We all understand that when an ordinance is passed by the City Council, it will be challenged,” Burbank told Bloomberg BNA. Attorneys are collaborating with economists to draft a bill that will withstand that challenge, he said.

The Trump-Proof Seattle Coalition—whose ranks are filled with public-sector labor union leaders—and the resolution itself are manifestations of a decades-long effort to enact a state income tax. But both the coalition and the resolution itself have seized the moment by linking the proposal with the necessity to resist proposed budget cuts by the Trump administration.

“Without progressive revenue tools, Seattle is in a weak position to respond to federal budget cuts proposed by the Trump administration, which could eliminate millions of dollars per year from Seattle’s budget for housing and human services and hundreds of millions from regional transit projects,” according to the resolution.

‘Upside-Down Tax System.’

“What Seattle is embarking upon, the City Council and the Mayor, is a legal process to clarify the legal ability of cities to establish a progressive income tax,” Burbank said. The brass ring would be to overturn state Supreme Court holdings that equate a tax on income to a tax on property that can be levied only at a flat rate and at no more than one percent.

Those rulings have prevented the state tax system from keeping up with the need for revenue in a burgeoning economy that derives such a high proportion of total revenue from tax on retail sales even as those sales have plummeted as a percentage of the total state economy, Burbank said.

And that reliance on sales tax has introduced a crushingly regressive element to Washington’s tax regime, Burbank said. “Our upside-down tax system deepens poverty, diminishes opportunity for low and middle-income families, disproportionately harms communities of color, hinders efforts toward establishing a more equitable city, and protects and reinforces the privilege of the wealthy,” the resolution says.

The bottom 20 percent of residents in our state pay about 17 percent of their income in state and local taxes, while the top one percent pay about 2.4 percent. “If you are in the top one percent, you‘ve already paid your state and local taxes by Jan. 6,” Burbank said. If you’re in the bottom 20 percent, you won’t pay off your taxes until March.

Addressing Income Inequality

Efforts to find revenue and address income inequality by taxing wealthy people or corporations have been cropping up across the country in places like San Francisco and Portland, Ore.

The San Francisco Board of Supervisors March 21 adopted a resolution to ask the California Legislature to change state law so that localities could impose local corporate and personal income taxes, also in response to President Donald Trump’s threats to pull funding.

Portland passed a first-of-its-kind tax in December on companies that pay their chief executive officer at least 100 times more than its median worker.

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

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of the resolution is at http://src.bna.com/osN.

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