Seattle City Council members are now just days away from a vote on the controversial high earner income tax. The issue goes before full council on Monday afternoon.
The proposed ordinance would impose a 2.25 percent income tax on high-income residents.
Those opposed say it's unconstitutional and feel the city is guaranteed to be sued if council members approve the income tax. Supporters consider the proposal a big step towards a tax system that is fair, transparent, and progressive.
So what determines whether you're a high-income resident? And how much might you be paying?
"One of the things I think is really important about this tax is we are only taxing income above the threshold that's been identified by the ordinance," said Council Member Lisa Herbold, who sponsored the ordinance. "And that threshold is $250,000 for a single filer or $500,000 for a joint filing household."
For instance, if a single person makes $260,000 annually, they would only pay income tax on the $10,000 that surpasses that $250,000 threshold; 2.25 percent of $10,000 comes out to a tax bill of $225.
Another example: A single person making $350,000 annually would pay income tax on the $100,000 that surpasses the $250,000 threshold; 2.25 percent of $100,000 comes out to a tax bill of $2,250.
Investment income would also be taxed, if it surpassed the $250,000 threshold for individuals and $500,000 for joint tax filers.
In total, the city says the high earner tax would generate about $140 million in revenue each year.
But it would also cost money to implement: between $10 and 13 million in one-time expenditures to set up the infrastructure needed to track tax returns and payments. Then, it would cost the city another $5 to $6 million in annual expenses, including staff needed to maintain the system, coordinate with the IRS, disseminate taxpayer education materials, and ultimately collect the tax.
Herbold believes it's a worthwhile investment.
"A lot has been said about the fact that Seattle and Washington state have such a regressive tax structure, meaning the people who have the lowest income actually pay the highest percentage of their income in taxes every year. We also have the second least transparent tax structure, meaning we don't know how much we pay at the end of the year in taxes. That's the second worst in the entire country," she said.
Herbold said Seattle can't reduce regressive taxes until the city implements a progressive tax.
The income tax would only apply to Seattle residents. That means a high earner living on the Eastside but working in Seattle would not be taxed.
That's just one problem with the proposal, according to the Washington Policy Center.
"They say they want to sock it to the rich, but when you look at the way it's structured, you have to be a resident of the city in order to pay it. So the wealthiest people in our area, billionaires, they don't live in Seattle. Paul Allen and Bill Gates. They live somewhere else," said Paul Guppy, who is vice president for research at The Washington Policy Center.
Herbold admits she gets a lot of questions about that particular part of the ordinance. Does she think it will prompt high earners to move out of the City of Seattle in order to avoid paying the income tax? No.
"We have studies of jurisdictions that have city, municipal, or statewide income taxes, and there is no study that supports the fear that people are going to move out of a city or state because they're paying a local income tax," Herbold said.
In developing the legislation, the council looked at nearly 3,000 other jurisdictions that impose income taxes across the country. Herbold said the council worked hard to come up with legislation that is most likely to withstand legal scrutiny.
Critics say a lawsuit is almost unavoidable.
"You don't even have to to be a lawyer to see an income tax in Seattle is against the law," said Guppy. "There are court precedents that go back to the 1930s that say an income tax is not allowed in our state under the state Constitution. And then, in addition, there's a state law the Legislature passed in the 1980s. The law is basically just one sentence; it specifically says no income taxes in our state."
Herbold says the council is aware of the possibility of a lawsuit.
"I never want to craft public policy expecting lawsuits, but there are folks out there that do sue cities, including ours, when we take progressive steps forward," she said. "And we have heard we will be receiving a lawsuit, but I still hope that doesn't occur."
The full council vote is expected during Monday's 2 p.m. council meeting. Council's finance committee approved the income tax ordinance earlier this week with a vote of 5-0.