Seattle City Council unanimously approves income tax for the rich

https://www.geekwire.com/2017/seattle-city-council-approves-income-tax-rich/

by mplanner • 9 years ago

44 84 9 years ago

geekwire.com

joshuaheard• 9 years ago

Washington state constitution: “a county, city, or city-county shall not levy a tax on net income.”

Seattle City Council: let's levy an income tax on the rich.

zackelan• 9 years ago

Yeah, except the state constitution doesn't say that. Instead it says [0]:

All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word "property" as used herein shall mean and include everything, whether tangible or intangible, subject to ownership.

Which was interpreted by the state Supreme Court in 1933 to mean "no income tax" after the voters approved one by 70% [1].

It's acknowledged by proponents of the city income tax that Seattle is doing this knowing it will be challenged in court. They want a test case so they have standing to go back to the state Supreme Court in hopes of overturning that precedent.

0: http://leg.wa.gov/lawsandagencyrules/documents/12-2010-wasta...

1: http://kuow.org/post/strange-short-story-washington-state-s-...

endianswap• 9 years ago

What about state law, though? Wouldn't they have to win the State Supreme Court case and also get the state law amended?

https://app.leg.wa.gov/rcw/default.aspx?cite=36.65.030

SomeStupidPoint• 9 years ago

It'll be interesting to see the court cases play out for this, and what the long-term effects will be -- both in switching WA to a more progressive tax scheme, and in the effects of a city implementing a tax like this (assuming Seattle prevails in court).

Seattle (and more broadly WA) taxes are all kinds of strange.

As someone said: isn't weird we have the two wealthiest people in the world here, but can't afford schools?

Thorncorona• 9 years ago

The Seattle area definitely does - they have #28, #41, and #80 out of the best 100 high schools.

nogbit2• 9 years ago

Because those wealthy people ran companies that never paid a dime in Washington States B&O tax while every other business without big lawyers must do so. If WA wants to fund the things they want they simply need to treat all business fairly.

https://www.google.com/search?q=microsoft+does+not+pay+b%26O...

taobility• 9 years ago

BillG/JeffB are living in Bellevue, east side of Seattle

bitexploder2• 9 years ago

Does a family making 250K-300K in Seattle really count as "rich"? I don't object to the tax in general, but I do object to the terminology. It is certainly a high level of income, but rich?.

http://blogs.seattletimes.com/fyi-guy/2014/10/06/as-seattle-...

This is targeting the top 20% of earners in Seattle. Time will tell if this is a sound policy. I think they could have achieved a similar level of tax by having a higher level of tax aimed at a much higher level of income (1 million plus). A family earning 200-250K in Seattle will definitely feel this tax. You still operate at a high level of privilege at that income level, but it isn't crazy. For comparison, according to cost of living indexes, if you earn 250K in Seattle you would need to make ~385K in SF, or only 140K in Atlanta. In Atlanta 140K is comfortable, but not "rich". I really think these sort of taxes should target the top 5% of earners only -- everyone below that actually feels it and is not "rich", especially in higher cost of living areas like Seattle.

tekklloneer• 9 years ago

Yes, $250K counts as rich. You can "get by" on combined income of $150K extremely easily. Maybe you don't buy a new bmw every year or live in an untrendy neighborhood. Oh, no.

jackfoxy• 9 years ago

The history of tax the rich gimmicks is simply the history of levying more tax on the middle class, and even eventually working class. Starting with the U.S. federal income tax, which was promised to be a tax only on the rich. In fact some states had no residents who had the minimum targeted income, at the beginning. How long do you think that lasted? Wait and see how long before Seattle adjusts the minimum down.

IanDrake• 9 years ago

And the tax rate up!

kansface• 9 years ago

| Wait and see how long before Seattle adjusts the minimum down.

Inflation already does the dirty work.

daveguy2• 9 years ago

Typically taxes like this are levied on the amount above the threshold. So someone making $250,000 / year will have to pay $0 in additional taxes. This is just like the federal income tax, where if you go into the next bracket you don't suddenly have to pay more on everything up to that bracket. It is only the additional income that is taxed at the higher rate. It's amazing how many intelligent conservatives don't understand this basic aspect of taxes in the US. If you make more you always keep more in the US.

lowpro• 9 years ago

Do you have a reference for this? I've honestly never heard of this and had no idea, even though I study politics and economics somewhat closely. I've never seen this brought up as a point on either side when talking about taxes, so I'm curoious if this is the case if there are exceptions that have become the rule and thus this might be technically true but not seen by most people?

TL;DR: taxes are hard, do you have a reference?

sidlls• 9 years ago

Does a family making 250K-300K in Seattle really count as "rich"?

Yes, kinda. My family earns in the range of 20% lower than the lowest bound there and we live in the Bay Area. We're at the very least affluent. I would never say "rich", because I reserve that for folks who don't have to work (i.e. they could live off unearned income in perpetuity and readily absorb more than one significant shocks, such as medical expenses, if they chose to), but comparing our situation to even middle-class folks is a bit laughable.

_delirium• 9 years ago

There are plenty of pretty affluent households in Seattle, but it's not quite 20% of them that make >$250k. What the linked article says is that the average (mean) income of all 60,000 households in the top quintile is $250k, not that $250k is the lower threshold for entering the top quintile.

I can't find detailed enough information to say what percentile a $250k household income in Seattle actually is. What I can find, from the 2015 census estimates, is that $200k is 87th percentile [1].

[1] As aggregated here: http://www.city-data.com/income/income-Seattle-Washington.ht...

lostmsu• 9 years ago

You seem to be missing, that family only pays above $500k

home_boi2• 9 years ago

I don't think so.

"Rich" refers to a lifestyle that cannot be afforded by just $250k.

An example would be:

- Private school

- Vacation home

- 3+ luxurious vacations a year

- Saving $50k+ per year

- Eating out at fancy restaurants weekly

- Seeing expensive shows weekly

- $1+ million dollar home ($3.5+ million if you're in the Bay Area)

5ilv3r• 9 years ago

250k a year can afford that. Private school is $50k, a vacation home is $24k, vacations are $15k, $50k savings is bs and you know good and well that no one does that while trying to make a presentation of themselves, fancy restaurants are $200 a night so 20k, expensive shows are $200 each so 20k, and a million dollar home is only 60k.

so 50+24+15+20+20+60=189 Oh shit look at that, there is room for savings/taxes too!

(numbers are yearly cost, not monthly or total cost)

influx3• 9 years ago

No, it doesn't count as "rich". Source: lived in Seattle for 10 years. The actual rich folks don't live in Seattle, they live in Medina, aka BillG, Jeff Bezos, the Seattle Seahawks, etc.

This is misguided and unconstitutional.

fwefwwfe• 9 years ago

Does a family making 250K-300K in Seattle really count as "rich"? ...A family earning 200-250K in Seattle will definitely feel this tax.

A family of 4 could live pretty well on half that in Seattle. Maybe they aren't "rich" as in "filthy rich", but I don't see how they'd actually feel it, other than savings goals having to be slightly less aggressive.

At $250,000 / year, your pre-tax monthly income would be about $28,833 and a tax of 2.25% would shrink that by $468. I don't see how I could honestly say I felt the tax if I made only half of 250k and they double it to 4.5%.

vmarsy• 9 years ago

What about 500k ? Because that's what the Seattle city council tax says [1]. So no, a family earning 200-250k will definitely not feel this tax

Even if the limit was 250k, how would a family earning less than 250k feel the tax? It would literally cost them $0 per year since only income above 250k are taxed.

From [2]:

    Tax Filing Status           Total Income                                                    Rate
    “single”	                Total income in the tax year up to $250,000	                0%
                                Amount of total income in the tax year in excess of $250,000	2.25%
                                
    “married filing jointly”    Total income in the tax year up to $500,000                     0%
                                Amount of total income in the tax year in excess of $500,000    2.25%

[1] http://council.seattle.gov/2017/07/10/council-approves-city-...

[2] http://seattle.legistar.com/LegislationDetail.aspx?ID=308547...

bitexploder2• 9 years ago

Ahh, that makes more sense. I thought it was combined family income. Thanks for clarifying.

unstatusthequo3• 9 years ago

Totally agree. Rich to me means over $1M/yr per earner, not gross across a couple.

mnm1• 9 years ago

It depends how you define rich. One guideline I use is that people are rich if they can afford their home outright in cash (not after 15 or 30 years). By those standards, 250-300k is not rich in Seattle. You'd still need to save for quite a few years to buy a home cash in the area.

stmfreak2• 9 years ago

Rich is as vague a term as "fair." To the 50% making $50k per year or less, yes, anyone making over $100k is "rich." And who isn't going to vote in favor of a tax when they lack the historical perspective and imagination that it might ever apply to their income?

jstanley3• 9 years ago

The Seattle City Council on Monday unanimously approved a plan to levy a 2.25 percent tax on the income of residents earning $250,000 or more annually. The Council estimates that the tax would bring in an additional $140 million each year.

In other words, they're offering a $140 million incentive for the high-earning residents of Seattle to move out. This is a good way to get "brain drain".

breadbox3• 9 years ago

More like an "empathy-deficiency drain", and I have no problem with that.

arjunbanker• 9 years ago

nailed it ^^

fleshBot2• 9 years ago

If not submitting to having my income expropriated at the barrel of a politician's gun means I lack empathy then you are using a very strange definition for the word "empathy".

xenadu02• 9 years ago

a) In real life try explaining to your SO/kids that they must abandon their existing life because you want to save 2.25%.

b) Assuming there was some flight out of the city good news! We can solve this by increasing state and federal income taxes. We can even tax capital gains and dividends at income tax rates. There is more than enough money to pay for the things we need to pay for.

(It is probably wise fiscal policy to exclude the first 1 million in investment income from capital gains as a way of encouraging small investors and those just starting out. If I were King I'd exclude the first 1 million in wages too, with a graduated phase-in and make it up by taxing people with $1 billion or more in assets+income combined).

imaginenore• 9 years ago

The ones rich enough can simply move their residence outside, and simply rent wherever.

mozumder• 9 years ago

One person's tax is another person's "things and services government can buy for cheaper than I can."

They've just given a $140 million incentive for people to move into the city.

jdonaldson• 9 years ago

$140 million is roughly the cost overruns for the Bertha project. Sometimes you're not getting goods and services, but rather someone's costly mistake.

stephengillie• 9 years ago

This will just push more across Lake Washington. Will Amazon start a competitor to the Microsoft Connector (bus service)? Or will they shift some operations over here? Why not both?

Jach• 9 years ago

Just when I had started to hope Eastside property values were reaching a peak and nearing a correction... My intuition says Issaquah will be the next big hub once Kirkland and Redmond saturate some more, but even the median home price there is $700k already.

rndmize2• 9 years ago

CA has an income tax that's 8% or higher above $40k. If this caused some kind of brain drain, I'd expect to see smart/wealthy people leaving the state. The last 30 years have been the opposite, with the Bay Area and SV growing in size and importance year over year. Further, when discussion of people leaving the state comes up, I hear constantly about cost of living and housing, never about taxes.

netheril96• 9 years ago

But tax is part of cost of living.

jblow• 9 years ago

I moved out of California because of taxes. Top tax bracket is now 13.3%.

influx3• 9 years ago

Quite a few people leaving California to lower tax states like Texas:

http://freebeacon.com/issues/number-californians-moving-texa...

home_boi2• 9 years ago

But Seattle is not the Bay Area. Professionally, it simply doesn't have as many opportunities as the Bay Area. The weather is much worse, it has a similar homeless problem to SF, less culture (somewhat subjective), worse schools compared to South Bay, etc.

I think the no income taxes has been a huge draw for stingy engineers who want to save $20k+/yr.

If the income tax, however tiny, actually goes through, people will see this as the beginning of many income tax increases and will be less likely to settle down in the area.

nugget• 9 years ago

Every state's tax code is a story of winners and losers; a historical record often heavily influenced by special interests and circumstances unique to that state. California's tax code has been designed by wealthy real estate developers who pay relatively little in income tax due to depreciation. Proposition 13 has been an incredible transfer of wealth from wage earners to the real estate industry. This is rentier capitalism and does little to promote Silicon Valley's brand of innovation, unless you view high housing costs as a useful mechanism to filter potential migrants. If California had opted for higher property taxes and lower income taxes, then I suspect it would be even more vibrant and dynamic than the admittedly successful State we see today. Other states, notably Texas, have taken such an approach: very high property taxes and no income taxes.

tristanj• 9 years ago

California also has an income tax of 1% for individuals earning one million dollars or more. It's called the California Mental Health Services Act. https://en.wikipedia.org/wiki/California_Mental_Health_Servi...

randyrand4• 9 years ago

Bad argument IMO. You don't know how much more of a tech center CA would be without their high income tax. We only have 1 data point, and we need 2. I know I personally avoid California because of the high taxes, and I doubt I'm alone.

conanbatt4• 9 years ago

They do this after so many companies decided to move to seattle. Very greedy.

petraeus• 9 years ago

Rich / Successful people don't leave money on the table lmao

randyrand4• 9 years ago

Edit: yes i know this is an unpopular opinion and will get downvotes. But it's also an honest question of mine that I've thought a lot about over time and I would appreciate a response if you want to downvote.

Even as a 'non-rich person', I can't help but think that progressive tax rates are unfair.

For me, fair means treating everyone the same. Regardless of everything -- that includes income.

Given this assumption of what fair means, the only fair tax system would be for each person to pay $X per year. A Family of 4 would pay 4 * $X. etc.

Can someone else offer a better definition of what fair means? And why I might be wrong?

I realize this would put a large burden on poorer folk in order to maintain the same tax revenue we have today. That may be undesirable. In fact an unfair tax system my be the more desirable tax system of the two. But even something good and desirable may still be unfair. I think that is the case here.

I think we may need to better separate good from fair in common language. They're intertwined, but they shouldn't be IMO.

GauntletWizard• 9 years ago

Fair means that I get what I want, and you pay for it.

It's really simple. Occam's razor it. Take the cynical view, and figure out what someone proposing would gain from their proposal, vs what it would cost them and others. Offer a solution that would not benefit them, personally, as much, but would include more benefit for whatever else they're claiming they support. See how often you're taken up on that offer.

This cynical view has successfully managed to keep me from being infected with many of the most virulent memes of our time, like Bernieism and believing that lives matter. It's also protected me from the many, many women who want to sap my precious bodily fluids.

/self parody

MAGZine• 9 years ago

the US takes in $1.947B in income taxes per year. there are 330,000,000 people. So, every man, woman, and child is on the hook for about $6,000 in taxes.

How is it fair that a low-income family of four makes $40,000 combined and pays $24,000 in taxes (60% of their income), where a middle-class family of 4 earning 200,000 a year pays $24,000 in taxes (12% of their income), while wealthy family of 4 earning 2,000,000 a year only pays 1.2%.

Does that seem "fair" to you? I don't think it is. In my own view of society, there is a certain amount of wealth distribution where we admit that some people will be lucky and some people won't, and that in capitalism, we will ALWAYS have winners and losers. The winners shouldn't have to give up all of their worth (be able to reap the rewards of their savvy), but the losers shouldn't be abandoned by society, either.

There are plenty of arguments to make for and against "fair," and "unfair," taxation. Paying according to your means seems fair to me.

of course, one could reasonably make the argument that like many things in life, taxation isn't fair, and yes, you might need to only buy a BMW instead of a Rolls Royce so that someone can afford food.

randyrand4• 9 years ago

But which definition of fair is correct, and why?

conanbatt4• 9 years ago

Can someone else offer a better definition of what fair means? And why I might be wrong?

Many!

There are 2 very different spheres of discussion the value and effects of taxation: morality, and economics.

From a moral standpoint, it depends on which system you abide to. In utilitarian terms, the case for higher income to the rich would be that the rich would suffer the loss of income a lot less than a poor man: someone with 1000 dollars would greatly suffer losing 500, but somone with 10 million, would not suffer for 50,000. You could argue in utilitarian terms that taxation could go very harsh in this regard, but then you know there will be some negative consequences (people leaving, etc) which can make it complicated.

In libertarian terms, self-posession and private property is paramount. What you have is yours, and whoever takes it is committing an act of robbery and violence. Any tax is an application of force, so not only progressive taxes are bad, any tax is bad. There shouldn't be taxes, they should be voluntary.

It is deontological to think that the taxes which are levied on richer people are a must because of the duty the rich have to the poor. A layman could think it is his duty to remove as much from the rich in help of the poor, even with the application of force.

To which system you subscribe, you will have a different opinion of the matter, but may I add that each person is a part each system and what we are the most is inconsistent.

In terms of economics, which of the above moral systems, utilitarians would care the most, you will find disagreement. There is a case that the rich paying more taxes ends up meaning less investment, which is what increases productivity and overall wealth, also known as supply-side or "trickle-down" economics. On the other side, you have increasing government spending to perpetuate and increase demand and produce growth. (keynesian economics).

Would government spending reduce or increase poverty? would it help or damage the economy?

Is an economist team thinking up this tax? or is it a group of politicians fattening their budget? It's almost certainly the latter.

robbiep• 9 years ago

You're wrong because the marginal propensity to consume is significantly higher for a person of lower income.

I.e. Costs of daily living may eat up 90% of a person on $30k a year's income whereas they may only be 30% of a person on $120k.

Therefore most progressive taxation systems offer an income free tax bracket. In Australia this is around 20k now; so up to 20k you pay $0 in tax.

That acts to protec the living standards of those on low or minimal incomes whilst providing tax revenues that allow the government to supply the services people on higher incomes need to generate their higher incomes (roads, rail, water, safety etc)

acjohnson55• 9 years ago

Although I'm a staunch supporter of progressive taxation, I think it's unfortunate you're downvoted, because I think that's a legitimate question.

To me, there are several arguments for progressive taxation.

To begin with, the wealthy benefit disproportionately from the playing field we have -- our robust marketplace and ample infrastructure (underfunded, though it may be). The further you are from subsistence, the more opportunity you have. In a very real sense, we're not actually a liberal society when so much is pay-to-play. So one argument for progressive taxation is that it's a means of rebalancing opportunity when wealth and income are grossly unequal

But I'd go further and assert that our means of wealth allocation is by no means fair, a priori. In fact, it's increasingly unfair. From that perspective, progressive taxation is a patch on the problem.

This would be a socialist defense of progressive taxation, but it's also possible to justify from a capitalist standpoint. If it's true that the wealthy are rewarded in return for their contributions to society, well then we should put them on a treadmill to keep them working. This is how corporations treat labor, after all. Unless of course real world capitalism is only for the benefit of people that happen to have capital.

nogbit2• 9 years ago

Illegal, plain and simple https://app.leg.wa.gov/rcw/default.aspx?cite=36.65.030

jboggan• 9 years ago

I'm going to guess that the City Council will radically overestimate the revenue this tax will bring in because they will fail to consider the reaction once again: http://www.seattletimes.com/seattle-news/politics/seattles-g...

unstatusthequo3• 9 years ago

Streisand Effect once again. Local governments outside Seattle must be overjoyed to benefit from these "medium" income earners moving. That is, if its found to be Constitutional, which I'm not sure it will be.

jkchu• 9 years ago

2.25% does not seem unreasonable to me. But I get the impression that it is an attempt to get a foot in the door to possibly pave the way for state income tax. Being from the Seattle area, that concerns me.

Mz• 9 years ago

For some people who moved to Washington at least in part because it has no state income tax, any income tax is too much and it isn't always about the money per se. I hate FILING income tax and I hate the idea that I can be audited. I have considered moving someplace without an income tax for that reason, having nothing to do with how much actually gets paid per se.

christophilus• 9 years ago

Yeah. I'm with you 100%. I have no problem with taxation, especially if it means social stability and safety-nets. But the filing process should be a non-event, and citizens shouldn't live in fear of the IRS.

uiri• 9 years ago

I don't think that this has any chance of actually being implemented.

(a) This is pre-empted at the city/county/local level by RCW 36.65.030 [0]

This is not the State constitution but rather state-level Statute. The state legislature could very simply amend this to allow Seattle to levy its tax.

(b) According to Article VII, Section 1 of the Washington state constitution, all taxes shall be uniform upon the same class of property. If (a) was repealed by the state legislature, Seattle would still be unable to levy a tax on the rich.

(c) Seattle would be stuck with a flat income tax (of 0% or another flat rate) because of the Washington State Supreme Court. It initially ruled in 1933 that income is a class of property in Culliton v Chase. [1] It has upheld that classification multiple times since then (e.g. Power, Inc v. Huntley [2]).

(d) A statewide initiative to initiate a similar tax on income above a high threshold ($200k/$400k instead of $250k/$500k) was defeated 65%-35%. That is only the latest in a long line of failed ballot initiatives to introduce an income tax in the State. [3] Voters do not want this.

[0] https://app.leg.wa.gov/rcw/default.aspx?cite=36.65.030

[1] PDF: http://dor.wa.gov/content/aboutus/statisticsandreports/watax...

[2] http://law.justia.com/cases/washington/supreme-court/1951/31...

[3] https://ballotpedia.org/Washington_Income_Tax,_Initiative_10...

conanbatt4• 9 years ago

The question for me is why.

According to http://openbudget.seattle.gov/#!/year/default

2013: 4.32Billion

2014: 4.72Billion

2015: 5.14Billion

2016: 5:41Billion

2017: 5.71Billion

The city is having almost half a billion extra revenue every year in the past 4 years, and yet it feels compelled to increase taxes.

This has to be just a money grab.

lh7777• 9 years ago

As I understand it, it's mostly an attempt to pave the way for an eventual statewide income tax. I'm all for that -- our regressive tax structure is terrible -- but I would've preferred that this measure serve as an offset to lower other taxes rather than just funding whatever new stuff the council feels like spending money on.

Seattle City Council unanimously approves income tax for the rich

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