TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, July 17, 2017

Seattle Lawmakers Pass Tax On Highest Earners; Mayor Eager To Be Sued

TaxReuters: Seattle Lawmakers Pass Tax on Highest Earners; Mayor Eager to be Sued 

Seattle's city council unanimously passed a pioneering income tax on the city's highest earners on Monday, a measure that has become a clarion call for Democrats there even though it is likely to face a swift legal challenge over violating state law.

The measure created a 2.25 percent tax rate on individuals earning above $250,000 and married couples jointly earning above $500,000. The tax will add roughly $140 million in new annual revenue and affect fewer than 20,000 residents in the city of more than 660,000, supporters say.

The proposal has become a rallying cry for Democrats and activists in the liberal-leaning city who used local opposition to Republican President Donald Trump to advance long sought-after local policies.

Washington is one of seven U.S. states without a tax on personal income, and no city in the state has an income tax.

Supporters of the Seattle proposal, including Mayor Ed Murray, say the current tax code unfairly burdens poor and middle class residents because it relies on "regressive" taxes, such as taxes on property and sales transactions.

Proponents say new revenue is needed to offset any potential drop in federal funding under the Trump administration.

"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," Murray said by e-mail after the city council's 9-0 vote.

Earlier on Monday, Murray told a cheering crowd at a rally outside city hall he would sign the measure into law on Friday and welcomed a legal challenge. ...

Voters in Olympia, the state capital, rejected a similar tax on its highest earners last year. In 2010, Washington state voters rejected a state income tax at the ballot box.

Jason Mercier, a director at the conservative Washington Policy Center, said Seattle's tax conflicts with state law and court decisions. He said he expects the city to face a swift legal challenge after Murray signs the measure into law. ...

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Seattle was the source of Skid Row. Guess it aspires to that again.

Posted by: ruralcounsel | Jul 17, 2017 4:02:06 AM

Darn. That will boost property values in Kirkland and other suburbs even more as the Seattle affluent respond to the tax. How will my son ever afford to buy a house there?

Posted by: mike | Jul 17, 2017 8:30:00 AM

As a former Seattle resident, the cynic in me suspects the mayor not only wants to be sued, he's secretly hoping the city loses. Politically, that'd let them say, "See, we tried to do something for those of you who aren't rich," while posing no threat to the rich who fill their campaign coffers and offer lucrative jobs post-politics.

The dubious legality of this also means the city need not look into taxes on the rich that aren't in violation of state law.

Posted by: Michael W. Perry | Jul 17, 2017 10:36:41 AM