As Trump Gears Up for Big Tax Cuts, Seattle Opts to Tax Wealthy

(Photo: AP/Elaine Thompson)

Demonstrators stand together as they wait for a Republican response to a new city income tax on the wealthy that was approved earlier by the Seattle City Council Monday, July 10, 2017, in Seattle.

The Seattle city council voted unanimously Monday to institute an income tax on the city’s highest earners, providing a stark rebuttal to the current trickle-down debate between President Trump and congressional Republicans over how much they should cut taxes for the rich. 

The measure will levy a 2.25 percent tax on individuals who make more than $250,000 and joint filers who make more than $500,000. The tax is expected to generate an estimated $140 million in new revenue for Seattle, which leaders say they hope to use to lower the burden of more regressive taxes like the city’s property tax, to plug any holes from potentially diminished federal funding spurred by Trump, and to bolster the city’s public services.

“Seattle is challenging the state’s antiquated and unsustainable tax structure by passing a progressive income tax,” Mayor Ed Murray said in a statement. “Our goal is to replace our regressive tax system with a new formula for fairness, while ensuring Seattle stands up to President Trump’s austere budget that cuts transportation, affordable housing, health care, and social services. This is a fight for economic stability, equity, and justice.”

Currently, Washington is one of the few states that don’t levy a personal or corporate income tax. No cities in Washington levy a tax on income, either. That’s partially why the Institute on Taxation and Economic Policy found in 2015 that the state has most regressive taxation system in the entire country, with low- and middle-income residents paying far more in state and local income taxes compared to top earners.

(Institute on Taxation and Economic Policy)

The state’s poorest 20 percent of earners pay nearly 17 percent of their income while the top 1 percent pays just 2.4 percent. The middle 20 percent of earners paid just over 10 percent.

As the Seattle Times reports, opponents of the tax are expected to file a challenge in the courts. Those opposed, including a slew of state and national conservative groups, argue that a local income tax violates the state’s constitution and state law, and that Seattle doesn’t have the authority to charge such a tax on net income. Proponents say they welcome the legal challenge, hoping to establish the right of municipalities to create their own income taxes. 

The idea of the local income tax was proposed earlier this year by a Seattle-based progressive group of economic advocates, nonprofits, and labor unions, dubbed the “Trump Proof Coalition,” that sought to establish a new tax on the rich to counter the Trump administration and bolster new spending initiatives in the city.

Advocates have tried to institute similar measures in the state but failed. In November, voters in the state capital of Olympia rejected a ballot measure that would have instituted a 1.5 percent income tax on households making more than $200,000 a year to establish a college tuition assistance program.

In 2010, Washington voters rejected a statewide ballot measure that would have established a 5 percent tax on wealthy households and a 9 percent tax on super-wealthy households, failing to gain even 40 percent support. However, as the Times reports, Seattle voters heavily backed the measure.

If the Seattle tax is upheld in the courts, it could serve as an important test case for bolstering progressive taxation in cities and beyond, just as the city led the way on implementing a $15 minimum wage.

In Washington, D.C., Republicans are trying to gut Medicaid to pay for tax cuts for the rich and institute still deeper rate cuts for the wealthy and corporations—even if it balloons the deficit.

Seattle, by contrast, is rejecting the doctrine of trickle-down economics, which holds that the economy can only grow through tax cuts for the rich. Instead, the city is advancing an affirmative economic doctrine that states that when the rich pay their fair share, it helps the economy grow from the middle out—not from the top down. 

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