Why is Seattle’s graduated income tax illegal?
- Washington state law is clear. Washington state law is clear that a city is prohibited from enacting an income tax (RCW 36.65.030).
- Washington Constitution prohibits. The state Constitution also says that property must be taxed at a uniform rate, and the state Supreme Court has ruled repeatedly over many decades that income is property.
- Washington voters have consistently and overwhelmingly rejected an income tax. Washington voters have rejected the adoption of an income tax the last ten times it has come up for vote, not to mention a graduated income tax has been ruled unconstitutional by the Washington Supreme Court twice. In 2010, voters rejected a state income tax by almost a two-to-one margin (64% to 36%). The 2010 income tax proposal was voted down in 38 of 39 counties, including King County. Seattle’s leaders have repeatedly said they view a city income tax as a step toward a state income tax.
Will this income tax be extended to other cities and other income levels?
- The tax will inevitably be extended to middle-income families over time. History shows that new income taxes are always extended to reach more taxpayers over time, as government revenue needs/wants relentlessly grow. Seattle’s “Tax the Rich” mantra inevitably will become “Tax You All, Government Needs More Money.”
- Supporters are Seattle’s income tax as a “test case” for Washington state. Proponents have made clear this is nothing more than a “test whether an income tax can be allowed under Washington state’s constitution” with the goal of expanding it across Washington.
Supporters of the tax claim that Washington state has one of the country’s most “regressive” tax systems. How do we address that?
- Seattle already has a very broad mix of taxes, fees for service, and utility charges to customers. Adding a new taxing vehicle will not address the concern about regressive taxes that many people share, especially since no existing taxes were reduced or eliminated when the income tax was adopted. And, history shows that the Seattle income tax would eventually be extended to reach low- and middle-income families as well.
- While any of us can make specific cases for unfairness in our state’s and city’s overall tax mix, in the bigger picture our system has worked to substantially grow tax revenues, while attracting people and opportunity to our region. Economic growth is and providing the resources governments need to support our fellow citizens and communities – Seattle’s annual revenues have grown by more than $1.3 billion in just the last four years.
What is the impact of an income tax on Seattle’s competitiveness?
- CNBC just ranked Washington as the very best state in which to do business. Number One. Our economy grew 3.7% in 2016, nearly two and a half times the national rate. We have the largest concentration in America of STEM (science, technology, engineering and math) workers. We are second in the number of patents filed. Part of the reason that businesses come to Seattle, and part of why we attract great talent – as CNBC noted — is because we have no income tax.
- In fact, our state regularly promotes the lack of an income tax as a reason to do business here. The Washington state Department of Commerce’s website promotes Washington as a great place to do business, listing “no income tax” as its first reason to choose the state: “No personal or corporate income tax are just a few examples of the many tax advantages you can enjoy when you invest in the Washington State.”
- At the end of the day, businesses have choices about where they can locate and create jobs. We are competing with every other city and every other state, and they very much would like to take what we have. Adopting an income tax eliminates the #1 competitive advantage cited by our state economic development authority.
If there is no income tax, how does Seattle pay for the challenges it wants to address – issues like homelessness, infrastructure, education?
- Seattle, like many cities, has significant challenges. But lack of revenue is not one of them. State tax revenues have increased from $28 billion to $38 billion in the last 6 years, and are projected to increase another $6 billion to $44 billion in the next four years. Seattle’s own annual spending has grown 33% to $5.4 billion since 2013. That spending of roughly $7,700 per resident is 35% higher than the Washington state average government spending per resident. And more revenue is coming through, for example, much higher car tabs. This issue is not about lack of revenue.
- Moreover, it’s not clear what needs an income tax would support. This money is not dedicated to any particular problem, and supporters of the tax have suggested multiple (and often conflicting) options for where this money would go. Before imposing an illegal tax that will undermine Seattle’s unique economic advantages, the City should be held accountable to explain why the $1.3 billion in additional revenue it is already receiving is not getting the job done.
- There are important decisions to make regarding how best to prioritize city spending and invest taxes and fees most efficiently and effectively to provide government services that are important to all of us. Since Seattle tax revenues and fee income continue to rapidly grow, we encourage the City Council to focus on balancing residents’ needs for important city services with the ongoing investments that will attract and retain people and opportunities in our city.
How will the Seattle income tax affect small businesses?
- All pass-through income will be taxed. When you sell your business, the gain will be taxed.
How will the Seattle income tax impact the sale of my home?
- In addition to annual property taxes, and the 1.78% excise tax when you sell your house, Seattle will now add a third 2.25% tax on your total income over 250/500K, which includes any gain on sale of your house. There is no exemption from this City tax, which will be imposed on tens of thousands of homeowners who have seen the value rise after living in their homes for many years.
Where can I view the legal complaint?
- The legal complaint can be viewed here.