Seattle Passes Measure To “Tax The Rich”; There’s Just One Problem…

After passing a $15 minimum wage intended to help low-income workers in Seattle, economists at the University of Washington produced a rather extensive research report a few weeks ago highlighting how the legislation was actually doing the exact opposite as companies were simply choosing to automate menial tasks, move businesses out of Seattle in search of more attractive wages rates or simply cutting back on employees to offset increased labor costs (we covered the study here: Seattle Min Wage Hikes Crushing The Poor: 6,700 Jobs Lost, Annual Wages Down $1,500 – UofW Study).

Unhappy with their failed experiment, the Seattle City Council decided to pursue a more direct form of income redistribution: a massive income tax on the rich.

As The Seattle Times points out, a measure passed by the Seattle City Council applies a 2.25% tax on total income above $250,000 for individuals and above $500,000 for married couples filing their taxes together.  The city estimates the tax would raise about $140?million a year and cost $10?million to $13?million to set up, plus $5?million to $6?million per year to manage and enforce.

Under the legislation sponsored by Councilmembers Lisa Herbold and Kshama Sawant, money from the tax could be used by the city to lower property taxes and other regressive taxes; address homelessness; provide affordable housing, education and transit; replace federal funding lost through budget cuts; create green jobs and meet carbon-reduction goals; and administer the tax.

According to U.S. Census Bureau data there are about 11,000 individuals in Seattle with earned annual incomes of at least $250,000 that would be impacted by the new tax.

In a statement, Mayor Ed Murray said Seattle is “challenging this state’s antiquated and unsustainable tax structure by passing a progressive income tax,” calling it a “new formula for fairness.”

Not surprisingly, Seattle’s progressive protesters came out in force to fight for the new tax on millionaires, billionaires, private jet owners.

“When we fight, we win!” they chanted with Sawant, who said more public pressure may be needed.

“If we need to pack the courts, will you be there with me?” she asked.

Karen Taylor, 34, was in the crowd holding a sign with a Seattle Times headline dating to the early 1900s: “Why don’t you come through with a little bit of the wealth Seattle has given you, rich man?”

The Judkins Park resident said she’s struggling to stay housed.

“Whoever goes against this is openly causing suffering,” she said.

Rally for Seattle income tax before vote- @cmkshama reminds us this is part of what she ran on. #KOMOnews #seattle pic.twitter.com/9XlQy5gYjF

— Kiyomi Taguchi (@KiyomiTaguchi) July 10, 2017

GOP Susan Hutchison in background, was going to make a statement against the Seattle income tax; blocked by protesters #KOMONews pic.twitter.com/hyEBflJD8c

— Kiyomi Taguchi (@KiyomiTaguchi) July 10, 2017

And when the measure passed those same progressive protesters erupted in applause at their ‘accomplishment.’

PROGRESSIVE INCOME TAX PASSES! Thank you to everyone who made this possible! pic.twitter.com/QEOCl7pgsd

— Transit Riders Union (@SeattleTRU) July 10, 2017

Of course, the Times also points out that there may be just a couple of ‘small problems’ with the new Seattle income tax…the largest being that it’s likely illegal.

There are three key legal barriers, according to Mercier: The state constitution says taxes must be uniform within a class of property; a 1984 state law bars cities from taxing net income; and cities must have state authority to enact taxes.

Seattle may assert that taxing total income is different from taxing net income, while also seeking a ruling that income isn’t property.

“We are greatly disappointed,” Washington Policy Center’s president, Dann Mead Smith, said in a statement after the vote.

“As a lifelong Seattle resident, it is frustrating to see the Seattle City Council choose to waste taxpayer dollars on lawsuits for an income tax that is not needed.”

The Freedom Foundation, a conservative think tank based in Olympia, announced in a statement that the organization was prepared to challenge the tax in court — “hopefully with a coalition of other freedom-minded organizations.”

“No matter who starts out paying it, everyone will eventually suffer,” foundation CEO Tom McCabe said in the statement, warning that the tax would creep down the income ladder.

But even if Seattle does manage to implement their new “rich tax”, we have a sneaking suspicion that they’ll soon learn that they can’t restrict people from simply moving themselves and/or their businesses to more favorable taxing jurisdictions...just ask California.