Seattle proposes 2 percent income tax on wealthiest residents

The proposal, which is expected to be challenged in the courts, would generate annual profits of $125 million to support public services and make the tax burden more equitable.

Seattle city council is proposing to introduce a 2% income tax on its wealthiest citizens in a bid to support public services and make its tax system more progressive.

According to a draft ordinance, if the proposal is approved, single households bringing in more than $250,000 and joint households making more than $500,000 per year would be required to pay the levy, which is expected to generate annual profits of $125 million.

The US Institute on Taxation and Economic Policy indicates that such households generally spend about 2.4% of their income on state and local taxes compared to 16.8% among households earning less than $21,000 per annum. Put another way, while people with earnings of $20,000 dedicate two months wages each year to paying their yearly tax bill, the top 1% pay theirs in only six days.

As a result, Mayor Ed Murray described Washington state’s tax structure as one of the most regressive in the US, “putting the burden on many of our most vulnerable residents….working people, families and communities of colour”.

But the new income tax would enable the city to “lower the burden associated with property taxes and other regressive taxes”, the draft ordinance said. It could also plug any funding shortfall as a result of President Trump’s proposed budget cuts, support public services and/or create ‘green’ jobs to help Seattle meet its carbon reduction targets.

The city council unanimously approved a resolution to support the tax, which is expected to affect 5% of local households, in early May, but it is expected to be challenged in the state courts if approved, as anticipated, in mid-July.

The state constitution indicates that taxes must be uniform within the same class of property – and the Supreme Court has ruled that income is property. A 1984 state law also prohibits counties and cities from taxing net income.