9 new ways Seattle could raise taxes to balance its budget

The city’s “Revenue Stabilization Workgroup” was tasked with crafting progressive taxes. Here’s what they came up with.

an exterior shot of seattle city hall

Seattle City Hall. (Jovelle Tamayo for Crosscut)

One of Washington’s claims to infamy is its longstanding tenure as the state with the most regressive tax structure, meaning poor residents pay a much higher percentage of their income in taxes than rich residents.

A group of Seattle officials, business and labor representatives and community advocates has been meeting since last fall to discuss new progressive taxes the city could consider to generate more money without further contributing to the state’s regressive tax structure. 

The Progressive Revenue Workgroup grew out of last fall’s budget deliberations, when city leaders had to address a general-fund deficit of more than $220 million. In the coming years, the city’s general fund will face even worse shortfalls if inflation outpaces revenue as currently projected.

To avoid deep cuts to city staff or services, Mayor Bruce Harrell and the City Council eventually agreed to shore up the budget with revenue from the Jumpstart Payroll Expense Tax on big businesses — money that’s supposed to be restricted to affordable housing, homelessness, climate resilience and support for small businesses. To ensure Jumpstart doesn’t just become the city’s rainy-day fund, Harrell and City Council Budget Chair Teresa Mosqueda launched the workgroup.

The workgroup released its final report on Wednesday with ideas for nine new taxes. They are:

  1. Expanded Jumpstart payroll tax
    The city could increase the rate of the existing Jumpstart tax, increase the number of businesses it applies to, or lower the salary threshold for the tax so it applies to more employees within businesses that already pay it. The City Council could make these changes without additional voter approval or state authorization.

    The workgroup imagines that any additional money generated by the expanded payroll tax would go to support the general fund, rather than be restricted to the original four policy areas.
  2. City-level capital gains tax
    In 2021 the Legislature passed a statewide capital gains tax on profits from the sales of stocks and other capital assets that exceed $250,000. The new tax survived a trip through the state courts and was ultimately deemed constitutional by the Washington Supreme Court. It’s now bringing in millions more dollars than initially projected.

    The city workgroup thinks Seattle could create a city-level tax on capital gains without voter approval and likely without authorization from the state. The City Budget Office estimates that a city-level 1% capital gains tax could generate between $25 million and $30 million annually.
  3. High CEO pay ratio tax
    This tax would apply to companies with a large gap between CEO pay and the median worker salary. The workgroup said it could be adopted as a surcharge on the existing Jumpstart tax and thus wouldn’t need state authorization.

    San Francisco and Portland both have versions of such a tax in play. San Francisco’s is projected to bring in between $60 million and $140 million annually. Portland’s version has generated about $4 million annually.
  4. Vacancy tax
    This tax would be levied on vacant commercial and/or residential units in the city of Seattle. Depending on the rules and tax rate, the workgroup estimates it could generate between $5 million and $20 million annually.
  5. Progressive real estate excise tax
    Seattle already relies heavily on real estate excise taxes — levied on the sale of commercial and residential properties — to fill the city coffers. The workgroup suggests the city could levy an additional tax on the sale of high-value properties, which would require state authorization.

    The group estimates such a tax could generate between $7 million and $14 million annually, if it were levied on properties worth $5 million or more.
  6. Estate tax
    Washington levies a tax on estates worth more than $2.19 million after the owner’s death. With permission from the state, the city of Seattle could tack on an addition to the state tax. Revenue from that incremental increase would go to the city. The city estimates that it could generate between $5 million and $10 million annually.
  7. Inheritance tax
    Inheritance taxes are similar to estate taxes, but the beneficiaries of the inheritance pay the tax rather than the estate. Washington had an inheritance tax until 1981, when voters passed a ballot measure to replace it with an estate tax.

    No U.S. cities have a city-level inheritance tax, and the workgroup acknowledges that creating one in Seattle would be challenging, requiring state authorization, a vote of the people or possibly both.
  8. Congestion tax
    Congestion taxes are effectively tolls on busy, congested roads. Seattle has batted around the idea of a Downtown congestion tax for years. Former Mayor Jenny Durkan went as far as hiring consultants to study the idea, and had hoped to have one implemented before the end of her first term in 2021.

    While the state already allows municipalities to toll local roads, those revenues must be used for transportation purposes. The workgroup did not provide an estimate of congestion-tax revenues, and acknowledged that they are administratively challenging to implement.
  9. Income tax
    Washington and Seattle progressives have long lobbied for a progressive income tax, an idea that’s been shot down by the state courts and voters numerous times. But the workgroup points out that the Washington Supreme Court has ruled that municipalities can impose a flat 1% income tax. Such a tax is not considered progressive as a graduated income tax would be, but the group estimates a flat tax would generate $670 million annually.

The ideas in the workgroup’s reports are just that: ideas. If city leaders are interested in making any of these new taxes reality, city staff will first have to do deeper financial and legal analysis before the City Council votes on legislation. The ideas that need state authorization would also require Seattle to lobby the state Legislature for a vote.

This is not the first time the city has gone through such an exercise. In 2018 the City Council convened another group (this one called the Progressive Revenue Task Force) that coalesced around passing a big business head tax, a precursor to the Jumpstart tax.

Not every member of the workgroup supports the city passing new taxes. Chamber of Commerce CEO Rachel Smith released a statement following the publication of the report suggesting the city should focus on aiding Downtown recovery to generate more revenue while eliminating any city services that “do not meet measurable outcomes, are duplicative of other entities, are no longer aligned with current priorities, or have grown faster than real-world demands.”

In a statement, Councilmember Mosqueda, who co-chaired the workgroup, said, “New revenue is critical to creating a resilient economy and avoiding an all-austerity budget, which we know harms families, businesses, and slows growth. The growing population and increased needs of our residents, small businesses, and community, demand results that scale to meet the need of all Seattleites.”

The City Council’s Housing and Finance Committee will discuss the workgroup’s report and potential next steps at its Aug. 10 meeting at 9:30 a.m. The meetings are available to stream on Seattle Channel.

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