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.

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Image credit: Shannon Kringen

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johnAbout john
Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.

Huddleston Tax CPAs of Seattle & Bellevue
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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.