Yesterday Jordan laid out how Washington State’s regressive tax system is damaging our schools, leading to the teacher strike we are now going through. Not only that, but property taxes and sales taxes focus the burden of taxes on middle and lower income individuals, amplifying housing affordability problems in the process.
Back in 2010, 68% of people in Seattle voted for the income tax proposed by initiative 1098. Unfortunately, the initiative lost on the East side and in rural Washington, with 54% of King County in opposition and 64% of the state opposing it. This failure followed similar failures previously to advance the issue, such as when Ron Sims ran for governor and made it the cornerstone of his failed candidacy.
Some in Seattle have proposed trying to reclassify income as property in order to institute an income tax just in Seattle. Two problems with that approach are that the courts are not likely to agree with the sleight of hand, plus even if they did there’s no mechanism for the city to get federal income tax documents necessary to assess the tax.
A more promising approach may be to have a new property tax levy that is only paid by those in upper income tax brackets. When people received the tax bill for this levy, they could either pay the tax bill or they would need to send in their income tax forms to the city to be excused from it (or be reimbursed).
This is legal as the city can issue property tax levies at will. Further, people would have an incentive to send their income tax information to the city so that they get excused from the property tax. Think of it as extending to middle income folks the existing low income senior property tax exemption program.
Seattle has many high paid professionals, with 35% making over $100,000 per year as of 2013, and 10% making over 200K per year. Collectively, those individuals could contribute enough revenue to make a real difference to the funding of education and other social services, particularly as their homes would tend to be high value.
Is it as perfect as a real income tax? No, because someone pulling down millions per year will only be taxed for their property, not their income. Also, it would get more complicated in the case of renters or multifamily households- in those cases, the property tax value would need to be split across tenants so they could separately petition for the exemption.
On the up side, it is something we could safely pull off as a city without needing to persuade the whole state that we need progressive funding for education. I’m partial to it, but as always I’m curious what our readers think. I guess there’s two questions here:
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I am completely for an income tax. Many Wallingfordians including myself would characterize 100k and 200k as middle class and not wealthy. I am willing to put in more but I’d like to see the burden shifted on individuals above say 250k and maybe even 500k.
The problem with an Income Tax is the same problem Congress has each year now with the Alternative Minimum Tax, or “AMT”.
When the AMT went into effect in 1969 it’s aim was to tax only those who were “wealthy”. However, it was not indexed properly and thus today congress has to fix this every single year, or else a single filer making above $53,600 would be subject to it. Remember that awesome 1986 song by Timbuk 3, that goes “50 Thou a year will buy a lot of beer, things are going great, and only getting better”? Well, today $50K does not buy a whole lot and is (unless congress acts each year) now subject to the AMT. Who would have thought $50 grand would be “wealthy”?
That’s my main issue with the Income Tax. Today’s definition of “Wealthy” by many measures is the same amount of money most of us will be earning (because of inflation) at some point in the future. In the last campaign cycle, even President Obama struggled with properly clarifying what his definition of wealthy was. It started out at $250K, then went higher when he realized how many of his donors actually made that much as a double income household.
Let’s all get back to our progressive nature, grounded in equality (liberty and justice for all) and have a FLAT INCOME TAX without deductions. That way it’s harder for future politicians and the IRS to screw it up.
Oh, and for your listening pleasure, here is the link to Timbuk 3. It’s totally awesome dude!
Jeff, you have a very good objection, but it would be easily rectified with proper language in the Tax law, that indexes the progressive rate income thresholds with their inflation over time. We need to “tax to the curve”, not to absolute numbers.
pkaczkowski I agree, but I don’t trust politicians to change the Indexing. The “NO” campaign on the last income tax in 2010 correctly pointed out that every single tax measure that specified where tax funds went was later amended/changed by the legislature. EVERY SINGLE ONE. That’s my concern, they can change the indexing without a vote of the people.
it should be linked to median income. that way, it is in everyone’s interest for all workers to earn decent wages. the higher the median income, the fewer people are subject to the tax.
Jeff, you are confusing “where tax funds went” with where tax funds come from. how tax funds are spent is a different issue.
it could be written into the law that the tax collection is indexed to a certain percentage of median income. period. you could add a tim eyman provision and require a 2/3 majority to change that index. as eyman knows, the legislature will never get a 2/3 majority for anything related to taxes.
1. Your last link goes to a Google search for “slight of hand”.
2. Are you sure that the city “can issue property tax levies at will”? What about the 1% cap on property taxes we have in the state?
3. We need a statewide (or at least county-wide) high-earner income tax. This property tax workaround (if even legal) seems too limited and unnecessarily complicated.
Thanks Doug, link fixed.
The 1% cap applies to the general fund (how much government can raise taxes), not to levies that the people vote on. Because of that, many levies we vote on have been doubling in size, including families and education, Move Seattle, HALA (proposed), and so forth. This post has a good chart showing how property tax rates for Seattle have been changing over time:
http://council.seattle.gov/2015/03/13/good-news-lower-property-tax-rate-in-2015/
The trouble with a statewide high income earner tax is that I’ve seen zero evidence of movement in opinion polls on that issue for many decades, despite it being talked about and voted on for the past 100 years. It seems to me that if something is going to happen to fix our tax system, it must begin at the city level.
The chart you linked to shows that 35% of Seattle households make over $100,000 a year. A couple each earning $50k a year does not correlate to “high paid professionals” in this city. Proposing an income tax on earners at this level will simply squeeze the middle class harder. The level needs to be higher, but I’m not sure Seattle has enough truly high-income earners to make a significant impact on our revenue structure.
no, it needs to be state-wide. most of our wealthiest citizens live outside the city limits – in Medina or the Highlands, for example.
the indexing is not a problem if it is written correctly to begin with – to be indexed to some percentage of median income, as i suggested on a previous thread. since median income is pushed up by the Seattle metro area, most of the rest of the state would fall beneath the threshold and would pay nothing.
if $200K is middle class, then most people i know, myself included, are working poor. remember, this is taxable income, after deductions. seattle median income is $58,000. that makes the middle class those making between $38,800 and $116,000. (http://www.seattlepi.com/local/article/How-much-do-you-have-to-make-to-be-middle-class-6155131.php) this seems insanely low – yes – because wages have not kept up with the skyrocketing cost of living in seattle. that’s a problem that needs to be taken up with employers, through collective bargaining.
one minor point about the penultimate paragraph of the article – you can’t levy property tax on renters. it would be the property owner’s responsibility to pay the tax. the whole “property-tax-linked-to-income” concept is flawed. too many opportunities for inequity and/or abuse.
As someone making a bit over $100k I would have to say that, while “comfortable” enough, we can barely afford to live in Wallingford since we bought a house somewhat recently rather than back when they were more reasonable, even 10 years ago. An income tax (I know it’d be based on taxable income) would be the straw the broke the camel’s back, so to speak, and could force our family out of the neighborhood. Levy after levy and exploding property values with associated taxes are already taking a big bite.
Once income tax is on the books it’ll only become an increasing burden as it’ll be turned to as a new spigot to fund everything and we’ll still end up with a lack of funds because our politicians seem to always find new ways to spend rather than save or invest in what we already have.
Even if every taxpayer in Seattle payed 80% of their gross income into some form of tax, eventually it wouldn’t be enough. There has been NO accountability for the irresponsible spending. Special interest groups, big bussiness and freeloaders must be stopped. Daily I see these groups taking more & more. There are a lot of people with ligitiment needs, and those needs need to be met. In just the past 2 days a couple of irresponsible issues stand out. One is money being wasted on cute pet project crosswalks. Another is Boeing was given HUGE tax breaks and benefits for keeping jobs in Washington, and now millions of dollars in sales tax will be lost and moving to China.
Steve
I will work as hard as I can for a state income tax. It is fair. And we would have a good way to fund education. It used to be funded by lumber, but we pretty much used it all up!
I need to check this, but I think we are one of only either 7 or 8 states that do NOT have a state income tax.
The issue is that they want to pass one tax, while keeping another. If they really want to move to an income tax it needs to be attached to an initiative to repeal sales tax.