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Seattle City Council Approves Income Tax On The Rich, But Quick Legal Challenge Likely

The measure applies a 2.25 percent tax on total income above $250,000 for individuals and above $500,000 for married couples filing their taxes together. A legal challenge is expected.

The Seattle City Council unanimously approved an income tax on wealthy residents Monday, a move widely expected to draw a quick legal challenge.

The measure applies a 2.25 percent tax on total income above $250,000 for individuals and above $500,000 for married couples filing their taxes together.

“Seattle should serve everyone, not just rich folks,” software developer Carissa Knipe told the council before the 9-0 vote, saying she makes more than $170,000 per year.

“I would love to be taxed,” the 24-year-old from Ballard testified, drawing applause from a room packed with supporters of the tax.

The city estimates the tax would raise about $140 million a year and cost $10 million to $13 million to set up, plus $5 million to $6 million per year to manage and enforce.

The council’s finance committee cleared the tax last week and increased the rate from 2 percent to 2.25 percent.

Opponents have argued the tax would violate state law and the state constitution, while proponents have said it would make Seattle’s tax structure more fair and that they want to test the legality of taxing income.

Neither Washington nor any city in the state now collects an income tax. That’s partly why the state’s tax system has been called the most regressive in the country, meaning people with less money pay a much greater percentage of what they have.

In a statement, Mayor Ed Murray said Seattle is “challenging this state’s antiquated and unsustainable tax structure by passing a progressive income tax,” calling it a “new formula for fairness.”

Washington State Republican Party chair Susan Hutchison urged Seattle residents to “forcefully resist the tax” by refusing to pay it.

Under the legislation sponsored by Councilmembers Lisa Herbold and Kshama Sawant, money from the tax could be used by the city to lower property taxes and other regressive taxes; address homelessness; provide affordable housing, education and transit; replace federal funding lost through budget cuts; create green jobs and meet carbon-reduction goals; and administer the tax.

Voting 5-3, the council approved an amendment by Councilmember M. Lorena González to possibly reduce Seattle’s business-license tax in some way.

The recent push for an income tax began in February, when nonprofits and labor unions calling themselves the Trump Proof Seattle coalition launched a campaign. The coalition said the revenue could offset threatened cuts by President Donald Trump’s administration and held town-hall events in every council district to drum up support.

A boost came in April, when Murray, during a mayoral candidate forum, said he would send income-tax legislation to the council. Earlier that week, former Mayor Mike McGinn had backed an income tax. Murray later dropped out of the race.

Legal arguments

A lawsuit will likely emerge in the next week or so, after the mayor signs the tax into law, said Jason Mercier, director of the Center for Government Reform at the business-backed Washington Policy Center, which opposes the tax.

There are three key legal barriers, according to Mercier: The state constitution says taxes must be uniform within a class of property; a 1984 state law bars cities from taxing net income; and cities must have state authority to enact taxes.

Seattle may assert that taxing total income is different from taxing net income, while also seeking a ruling that income isn’t property.

“We are greatly disappointed,” Washington Policy Center’s president, Dann Mead Smith, said in a statement after the vote.

“As a lifelong Seattle resident, it is frustrating to see the Seattle City Council choose to waste taxpayer dollars on lawsuits for an income tax that is not needed.”

The Freedom Foundation, a conservative think tank based in Olympia, announced in a statement that the organization was prepared to challenge the tax in court — “hopefully with a coalition of other freedom-minded organizations.”

“No matter who starts out paying it, everyone will eventually suffer,” foundation CEO Tom McCabe said in the statement, warning that the tax would creep down the income ladder.

But Sawant insisted her only desire is to “tax the rich,” and Herbold said the legislation has been designed to give the city its best chance in court.

“Time for rich to pay their fair share”

Supporters of the tax rallied before Monday’s vote, waving signs and cheering.

“When we fight, we win!” they chanted with Sawant, who said more public pressure may be needed.

“If we need to pack the courts, will you be there with me?” she asked.

Karen Taylor, 34, was in the crowd holding a sign with a Seattle Times headline dating to the early 1900s: “Why don’t you come through with a little bit of the wealth Seattle has given you, rich man?”

The Judkins Park resident said she’s struggling to stay housed.

“Whoever goes against this is openly causing suffering,” she said.

Inside City Hall, Taylor wound up sitting next to income-tax opponent John Peeples, who was vastly outnumbered.

There were grumbles in the chambers when Peeples reminded the council that Washington voters have rejected income-tax measures on multiple occasions.

“Yes means yes and no means no,” said the 45-year-old Green Lake resident.

The crowd was more appreciative of homeowner Bobby Righi, 79, who said she’s campaigned and voted for one property-tax levy after another despite modest means.

“It’s time for the rich to pay their fair share,” said Righi, of Phinney Ridge.

Outside City Hall after the vote, calls of “tax the rich” by proponents of the legislation drowned out Hutchison as she spoke against the council’s action.

In a KING 5/KUOW poll last month, 66 percent of 900 Seattle adults who took part expressed support for an income tax on the wealthy, while 23 percent were against it and 12 percent weren’t sure.

There were about 11,000 individuals in Seattle with earned annual incomes of at least $250,000 in 2015, according to U.S. Census Bureau data. The Seattle tax would cover both earned and unearned income.

“Washington has among the most regressive tax systems in the United States,” the legislation states, citing research by the Institute on Taxation and Economic Policy.

In 2015, Washington households with incomes below $21,000 paid 16.8 percent of their income in state and local taxes, on average, while households with income above $500,000 paid only 2.4 percent, according to the organization.

(First reported by The Seattle Times)   (July 11, 2017)

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