A Few Thoughts on Seattle’s New Tax on the Wealthy

Seattle City Income Tax Wealthy Residents

Seattle’s New Tax on Wealthy Residents

On Monday, July 10, the Seattle City Council unanimously approved a new city income tax targeted toward Seattle’s highest-earning residents. The new tax will collect 2.25 percent on incomes above $250,000 for individuals and $500,000 for married couples filing jointly. Expectedly, the measure has received a great amount of both positive and negative feedback.

As our regular readers will know, here at HTW it is almost unheard of for us to take a strong stance on any controversial issue. By design, our material is intended to provide readers with helpful information so that they can more capably navigate the complex worlds of tax and accounting. In other words, our aim is to confer tangible benefits, not push political agendas. Consistent with this aim, we’d like to look carefully at this new city tax and provide a balanced opinion of its usefulness and likelihood of success. Whether it be upheld or struck down, our one unswerving hope is that this new tax creates a more just environment for Seattle residents of all socioeconomic backgrounds.

Intense Reactions

As mentioned, the tax has sparked intense responses on both sides of the debate. Supporters point to a number of facts which seem to bolster the tax’s desirability. Seattle imposes one of the heaviest tax burdens on low-income families in the nation; on the other end of the spectrum, high earners in Seattle enjoy one of the lightest local tax burdens. Supporters also insist that the additional funds generated by the tax are necessary to improve local conditions.

Opponents of the tax, on the other hand, have put forth several arguments against the tax. For one, they contend that this new city income tax could be a slippery slope, and if left unchecked it could lead to a statewide income tax which would affect Seattle residents of all income levels. Adversaries also argue that the city’s targeting of wealthy residents is unfairly discriminatory and is tantamount to punishing success.

It seems likely – practically certain – that the divide will persist well into the distant future. What’s also nearly certain is that opponents of the new city income tax will file a legal challenge against the measure.

Legal Objections

Opponents claim that the new tax may be undermined on several different grounds. For one, the state constitution of Washington provides that taxes must be uniform within a “class of property” to be upheld. This new income tax possibly violates this rule by selectively targeting wealthy residents. Furthermore, an active 1984 state law forbids cities from taxing net income; Washington also has a requirement that cities must receive approval from the state capital before they can impose new taxes.

At present, no one of these objections appears the most likely to be invoked. But there’s practically no room for doubt that at least one of these objections will be raised against the new tax in the near future.

Closing Thoughts

Certainly, not one of those who count themselves among Seattle’s wealthiest residents can argue against the desirability of improving local conditions and raising the living standards of Seattle’s entire population; the need to improve our city, as well as the need to address local poverty, is something all Seattle residents can agree upon. But whether this new city income tax be the proper method to address city financial issues is something which remains to be seen. On the one hand, there is no getting away from the fact that Seattle’s tax treatment of wealthy residents is comparatively very gentle; but how can proponents of the new tax be certain that changing this state of affairs won’t cause a mass of socioeconomic flight to other areas of the country? What if imposing the tax inadvertently leads to a financial situation for Seattle which is worse than it was before? Only time will provide the clarification we need.

Source A

Source B

Image credit: Shannon Kringen

The Dire Condition of Kansas’ State Budget

Kansas State Budget

State of Kansas

In 2012, Kansas governor Sam Brownback and the state legislature passed a measure to reduce state income tax rates for all Kansans and eliminate income tax for some 300,000 LLCs. Brownback and his fellow statesmen reasoned that such a measure would re-energize the state economy and promote job creation; neither Brownback nor any of the legislators believed that such a reduction would have a net negative impact of the state pocketbook. As it turns out, the cuts — which only took effect in 2014 — have led to a massive downfall in tax revenue and prompted a variety of new measures in order to cover the shortage.

The figures for the most recent fiscal years show the extent of the problem with unmistakable clarity. In 2013, the state of Kansas brought in $2.931 billion; this was a modest increase from the $2.908 billion which was collected in 2012. In 2016, Kansas collected a startlingly low $2.249 billion. To put it differently, as a result of the cuts, in 2016 Kansas collected roughly $650 million less in individual income tax dollars than in every year prior to the passing of the cuts. Though all positive intent may be imparted to him, the governor’s actions have created a distressful predicament for the state’s budget.

Kansas has actually lost 700 jobs over the course of the past year and currently ranks sixth worst in the nation in terms of rate of job growth. In response to the revenue downfall, the state has been compelled to divert more than $1 billion away from road improvements, implement a sizable sales tax increase, slash tens of millions of dollars from higher education and exhaust all of its cash reserves. Though they were intended to promote economic growth, given the consequences which have followed it is impossible to call the tax cuts of 2012 anything but a failure.

The governor has attempted to downplay the role of the tax cuts in creating the financial quandary: he’s alleged that recent financial projections have been overly optimistic, he’s highlighted the poor performance of the farm and oil industries, and he’s also reminded everyone that Kansas brought in more money in 2016 than in 2015. But these attempts ultimately fail to excuse the fact that, so far, the 2012 tax cuts have failed to deliver the benefits he promised and have led to the awful financial situation we see today.

Image credit: davecito

Source

One way to get around the issue of a rough job market is to create a job for oneself. If you’re thinking about taking the entrepreneurial route you should view this presentation on self-employment tips

Alaska’s Current Tax Debate

Alaska Tax Debate

State of Alaska

The decline in oil tax revenue has sparked an important debate among Alaskan policymakers. Historically, Alaska’s oil supply has resulted in surpluses for its state government; now, with oil production on the decrease, state legislators are seeking measures in order to confront the newly created deficit. At this point, the debate has narrowed down to whether Alaska should adopt a state personal income tax or a sales tax. Alaska has been without a state personal income tax for 35 years and it has never collected sales taxes in its entire history.

The Institute for Taxation and Economic Policy (ITEP) released a report back in mid-July which addressed the issue of Alaska’s revenue woes. The report – which was entitled “Income Tax Offers Alaska a Brighter Fiscal Future” – makes the case that implementing personal income taxes for Alaskan residents is the better option. Essentially, the report propounds that adopting a personal income tax is more equitable, more sustainable in the long-term and also more financially beneficial to the bulk of Alaskans.

Though the debate is alive and well, several actions have already been taken. Governor Bill Walker has already made cuts to state spending and substantially curtailed tax breaks available to the oil industry. What’s more, Walker also reduced the maximum amount Alaskans may receive through the Permanent Fund; each person may now receive a maximum of $1,000 rather than the previous maximum of $2,072. The Permanent Fund is a statewide fund established to help ensure that a greater share of the Alaskan population benefits from the state’s oil stock.

Bringing balance to Alaska’s fiscal quandary will be no easy matter. Whatever option is selected, there will be a sizeable bite taken out of Alaskan pocketbooks. The hope is that the settling of Alaska’s revenue problems won’t disproportionately affect lower to middle level income families. So far, with all available evidence taken into consideration, it appears that reinstituting a personal income tax in conjunction with a few other measures is the surest means to provide both an equitable and sustainable financial future. Only time will tell if this is indeed the means which will be adopted.

Image credit: davecito

People searching for a lucrative career should consider petroleum engineering. Future petroleum engineers should view this presentation which provides valuable tax insights for architects, engineers and construction professionals

Huddleston Tax CPAs of Seattle & Bellevue
Certified Public Accountants Focused on Small Business

(800) 376-1785
40 Lake Bellevue Suite 100, Bellevue, WA 98005

Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching, Quickbooks consulting, bookkeeping, payroll and business valuation services for small business. We serve Seattle, Bellevue, Redmond, Tacoma, Everett, Kent, Kirkland, Bothell, Lynnwood, Mill Creek, Shoreline, Kenmore, Lake Forest Park, Mountlake Terrace, Renton, Tukwila, Federal Way, Burien, Seatac, Mercer Island, West Seattle, Auburn, Snohomish and Mukilteo. We have a few meeting locations. Call to meet John Huddleston, J.D., LL.M., CPA, Tawni Berg, CPA, Jennifer Zhou, CPA, Jessica Chisholm, CPA or Chuck McClure, CPA. Member WSCPA.