Should Seattle have an income tax?

Along with budgets cuts, fairer, more sustainable city funding, especially in hard times, is worth exploring.
Crosscut archive image.

Mayor Mike McGinn, in a visit at Crosscut.

Along with budgets cuts, fairer, more sustainable city funding, especially in hard times, is worth exploring.

The state, county and city are facing more budget deficits. Revenues are trickling in, the economic turn-around (if it's even happening) is sloooow and there are danger signs of a double-dip for the Great Recession.

A sobering report on the "job gap" from the Brookings Institution says that for the U.S. to get employment back where it was before the bust in 2008, and to accommodate all the new people entering the workforce (like those kids graduating from college), it will realistically take 11 years. So, happy days might be here again, in the year 2021.

In other words, don't look for a fast end to the economic slows.

This means we're going to have to get used to doing with less, especially from local government. The question is, how much less?

The city of Seattle is facing an estimated budget hole of $56 million next year, and $53 million the year after. That's going to mean big cuts, layoffs, and adjustments to labor contracts and other rules that are costly.

But what about working both sides of the equation? I think we'll have to raise revenues as well. And that's going to be hard, not only because no one likes paying higher fees and taxes in good let alone downtimes, but because the city has relatively few options.

To raise revenues, McGinn says the city will look at loosening rules about placing advertising on public spaces (like bus shelters), and looking for commercial opportunities in parks, such as leasing space for cafes or other appropriate businesses. The focus on finding a paying customer for the old Fun Forest space at Seattle Center is likely to be a standard for the near future. (I suggest that if you want to put ads at bus stops, the awful metal benches would be a great place to advertise hemorrhoid cream.)

McGinn has also proposed raising the parking tax and the fees on car tabs.

The business community generally doesn't like anything that makes it tougher for drivers, because retail in Seattle still largely relies on the car. And it's not like Metro doesn't have huge financial challenges for expanded service: we're unlikely to see more bus transit in the short term.

On the other hand, taxing vehicles and parking helps further the city's and McGinn's longer-term vision of re-socially engineering the city into one that is less dependent on cars. Many suburban Seattle cities have boosted tab fees to help with roads, according to the Seattle Times, including Edmonds, Shoreline, Lake Forest Park and Des Moines.

But there is a tug-of-war. The city council, for example, has touted its repeal of the city head tax as being a way to help business. That cut a revenue stream at a time when every trickle counts. There's a dilemma: how do you raise revenues without making other problems worse, or beating a dead tax horse?

The problem is, over time, Seattle might need a lot more money, especially to fund basic services, like parks, roads, libraries, and public safety. You can cut expenses only so far. How do you work the other side of the equation? The city has a set of state-approved taxes that it can tweak, including the B&O, property tax, sales tax, real estate excise tax, parking tax, vehicle license fees.

McGinn wants to raise the last two, but some of the others are even more problematic. The B&O tax hurts small business at a time when they need more support, and small business is the great job generator. Raising the sales tax makes an already regressive tax worse.

McGinn points to Washington's tax system as one of the least fair in the entire nation, with the richest residents paying the smallest percent in taxes, and the heaviest tax burden falling on those who make the least. As of last week, the I-1098 ballot measure has officially qualified for the November ballot. This is the Bill Gates, Sr.-backed measure that would exempt small business from the B&O tax, cut property taxes by 20 percent, and impose an income tax on the state's highest earners, the 3 percent of us making $200,000 or more per year ($400,000 for couples).

If the state high-earners tax passes, it would help rectify the regressiveness of the state tax system, and relieve a major burden for small business. But could it also open a door for a comparatively tax-friendly Seattle to revamp its own tax system? The state controls what taxes a city can charge, but if I-1098 passes, Seattle conceivably could go to Olympia and ask the the authority to impose its own high-earners income tax.

The point would be to raise taxes on the people who are doing well even in hard times, to begin shifting the city's tax burden to a fairer system, and to find sustainable revenues to maintain and improve city services even as budgets are trimmed. Many major cities have wage, employment, or occupational taxes on individuals, employers or businesses as part of the mix, including New York, San Francisco, Philadelphia, Indianapolis, Baltimore, and Portland (Multnomah County).

Seattle voters have proven to be willing to spend for major public benefits. Despite the Great Recession, we are an affluent city, with aspirations to be a fairer city. Could tax reform at the state level trickle down to the municipal level? It's a possibility that should be actively explored.


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About the Authors & Contributors

Knute Berger

Knute Berger

Knute “Mossback” Berger is Crosscut's Editor-at-Large.