Seattle’s New Income Tax Bodes Ill for the City’s Economy

National Review
By Philip H. Devoe
September 13, 2017

The city’s progressive income tax, which runs afoul of the state constitution, is being challenged in court. Signs reading “Step Forward for Progressive Taxation,” “Trump-proof Seattle | Tax the Rich,” and “Tax the Rich, House the Homeless” adorned a June city council hearing in Seattle. Those brandishing the signs were proponents of the resolution up for discussion, an income tax on the city’s highest earners. What began as a proposal for a 1.5 percent tax on individuals with an annual income surpassing $250,000 and household income surpassing $500,000 had by that time been hiked to 2 percent, to the glee of the tax’s supporters and the ire of its opponents. When the ordinance passed in July, it had risen to 2.25 percent.

The proceeding must have been familiar to Seattleites present for the $15 minimum-wage debate in 2014. In both cases, adherents of the policy up for discussion used its absence as evidence of its necessity. Both times, too, the policies’ supporters ignored warnings about the effects the changes would have on the city’s economy. Studies conducted since Seattle’s new minimum wage began to be gradually phased in have shown those warnings to be correct. In June, a National Bureau of Economic Research study found that the costs, such as fewer hours/less take home pay and lost jobs incurred by low-wage workers as a result of the hike have outweighed the benefits by a ratio of three to one.

The outlook for the latest proposal looks equally bleak. The new income tax would threaten not just the low earners supposedly unaffected by it, but the city and state’s now-booming economy as a whole. Yet city councilmembers haven’t attempted to answer arguments about the economic downsides of their proposal, or even make a case for why an income tax is necessary: They see a redistributive income tax as a self-evident good. “We’re here to tax the rich,” proclaimed councilmember Kshama Sawant, the bill’s sponsor, who was instrumental in the $15 minimum-wage legislation, at the council’s vote on the tax. Then-mayor Ed Murray said that his “progressive city” had hit upon “a new formula for fairness.” (Murray resigned Tuesday after the fifth allegation of child-sex abuse, which he denies, was lodged against him.) The sole intent of the ordnance, as the resolution produced in the June meeting put it, is to “target[] high-income households.”

While other cities, states, and the federal government often levy taxes to raise revenue, the Seattle income tax doesn’t seem designed to raise much revenue at all. In fact, during a town hall with other mayoral candidates in April, Murray explained that he plans to use the revenue generated by the tax to lower other taxes. The Seattle Times reported, though, that the income tax won’t be completely revenue neutral, “because some of the new revenue would be set aside to backfill potential cuts in federal funding by the Trump administration.”

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