City income-tax on high-income residents passes Seattle council committee

Following weeks of discussion and public hearings, a Seattle City Council committee approved the city-income tax on high-income residents on Wednesday.

The legislation, introduced by Socalist councilwoman Kshama Sawant, will be considered in a final vote on Monday.

Here's what to know now.

About the tax

Mayor Ed Murray made comments in the spring about the idea of proposing a city income tax on "high-end" households and high earners.

According to a report a council committee in May, Seattle has the most regressive state and local tax system in the country. A regressive tax means the rate goes down as personal incomes go higher; lower income earners pay higher tax rates than the highest earners.

The new income tax proposal seeks to make the tax system more progressive by shifting more of the tax burden to the wealthy.

>> Related: Potential costs, complications of Seattle income tax

Sawant introduced actual legislation for the proposal in mid-June. It creates an income tax of two percent all income over $250,000 for an individual and $500,000 for a couple.

For example, if an individual makes $300,000, it doesn't tax the entire $300,000, just $50,000 of it. So the city would get $1,000.

The council estimates that tax would raise about $125 million annually and says fewer than five percent of the city's households would pay, according to The Seattle Times.

Councilmember Lisa Herbold is co-sponsoring the legislation and Mayor Ed Murray is endorsed it.

Councilmember Tim Burgess (Position 8, Citywide), chair of the Council’s Finance Committee, issued the following statement on Tuesday:

"This is a step toward a fairer tax system. We will use the tax proceeds to lower property taxes and to fund essential city services. In a state with the most regressive tax structure in the entire country, Seattle is again leading with progressive reforms.

"This type of tax reform is especially important now and Seattle is going to start the conversation. The state legislature just adopted a school funding measure that will impose the largest property tax increase in Seattle's history, adding about $460 a year to the property tax on a median Seattle home. It's another blow to the middle class. We have a better plan, a tax system that is fair, progressive, and adequate to meet the demand for public services. The state legislature should follow our lead."

Toward the end of his statement, Burgess was referring to the state's recently-passed $44 billion budget. The budget is getting criticism from King County financial analysts who believe it largely comes at the expense of Puget Sound residents who will see large tax hikes and limited increases in local school funding.

Legislative obstacles for the tax

It’s illegal for cities to impose an income tax under the Washington state constitution, so if the tax passes, it will no doubt be challenged and likely reversed.

If the council can get the court’s approval, it can move forward with a progressive income tax.

>> Related: Potential costs, complications of Seattle income tax

State Rep. Brandon Vick told KIRO Radio that he wants to pass a bill that will shut down any legal attempt that Seattle can take toward an income tax. He’s not alone. Republican state Sen. Phil Fortunato has his own companion bill to Vick’s.

Vick and Fortunato efforts would have blocked income tax attempts by any Washington city or county from going forward.

But Vick's bill died after being introduced in each of the three special sessions. Same with Fortunato's bill.

Only seven states don't have an income tax, and a KIRO 7 News search found none them have cities that levy their own income taxes like Seattle would.

What supporters say

Proponents of the tax say it would create a more even playing field in a city that's becoming too expensive for low- to middle-income taxpayers to afford.

In early May, the City Council unanimously supported a resolution in favor of a Seattle income tax. The resolution did not make the tax official, but it expressed the council’s intent to “adopt a progressive income tax targeting high-income households.”

Sawant has taken to social media and held a town hall to build momentum behind her movement, which she calls “Tax the Rich.”

"For decades, poor and working class people in our state have paid far more of their income in taxes than the super-rich. Now with Trump's billionaire-backed right-wing administration threatening massive tax breaks for corporations and the super-wealthy alongside vicious cuts to social programs for ordinary people, thousands are getting organized. We need to use this momentum by winning a tax on Seattle's rich this year," she wrote in a blog post.

What opponents say

The "tax the rich" narrative has another side.

Critics say the majority of the wealthiest taxpayers in Seattle are small-business owners, managers and professionals with incomes of $250,000 or more.

Some believe a progressive tax would create an unfriendly business climate and could drive companies away or prevent new ones from forming.

KIRO 7 News talked to former Microsoft CEO Steve Ballmer, who said in May that an income tax would hurt Seattle.

>> Related: Kshama Sawant calls out Steve Ballmer over income tax

'There would be fewer jobs here with an income tax than without an income tax,” Ballmer said.

Ballmer believes tech companies would have to pay higher wages to maintain their competitive advantage over California, which has a 14 percent income tax.