Seattle City Council approves new payroll tax

Seattle City Council approves new payroll tax
The Seattle City Council has voted in favor of a payroll tax that is likely to be the first of several new revenue proposals by councilmembers. Photo: freepik.com

Just over two years after passing and repealing a job tax ordinance, the Seattle City Council voted at a July 6 meeting in favor of a new payroll tax on higher-income employees that is likely to be the first of several new revenue proposals by councilmembers.

The payroll tax is represented as needed to provide additional money to the city as it anticipates an estimated $210-300 million revenue drop because of the state-ordered shutdown due to COVID-19 which resulted in a citywide 15 percent unemployment rate.

However, several councilmembers prior to the ordinance vote said the tax is one piece of an ongoing effort to change the state’s revenue structure at the local, regional, and state levels. Following the repeal of the city’s job tax, state lawmakers introduced a bill this year that would have allowed for a regional version of the ordinance within King County. That bill failed to clear the legislature.

Councilmember Andrew Lewis said at the July 6 meeting that while “I understand it is a heavy lift to get that out of Olympia…we can’t wait for Olympia to provide this relief.”

Lewis was among the councilmembers who narrowly supported an amendment to the ordinance creating a 20-year sunset clause. “The hope would be that in that time we would be able to transition as a state and region to some sort of regional alternative tax.”

However, he added that by the time the ordinance expires “we’re going to be in a position to get progressive revenue from Olympia on a regional basis,” citing the state legislature’s restructuring last year of the real estate excise tax (REET) as an “initial glimpse of that.” Lewis also said he intends to propose a local capital gains tax. “It’s important that we continue to think of ourselves as a regional partner,” he said.

If enacted by the city council, the capital gains tax is likely to draw a lawsuit similar to that filed against the city when it tried to impose a local income tax in 2017. That ordinance was struck down in the Court of Appeals and denied a hearing by the State Supreme Court, where many progressive tax proponents hoped the justices would overturn the state constitution’s prohibition on a graduated income tax.

The city’s new payroll ordinance imposes a tier-rate payroll tax starting at .7 percent on salaries between $150,000-$400,000. Above that, the rate then increases to 1.7 percent.

Although the ordinance’s sponsor, Councilmember Teresa Mosqueda, called it the “JumpStart” tax that “is part of the remedy,” Councilmember Kshama Sawant described it as an Amazon tax “preparing the ground for a different kind of society.” Directing her comments to Amazon CEO Jeff Bezos, Sawant said: “We are coming for you and your rotten system.”

One of the two council members to oppose the ordinance was Alex Pedersen, who told colleagues that the tax – four times larger than the 2018 job tax – does not provide opportunity for the voters to have a say. He added that “we could also do a better job of looking for savings in our existing budget. We expand social services, not government salaries. That’s not austerity – it’s sustainability.”

The vote was preceded by a July 1 letter signed by business groups including the Pacific Merchant Shipping Association, Washington Technology Industry Association, Visit Seattle, NAIOP Washington State and the Washington state chapter for the Association for General Contractors.

The letter stated: “we must focus on recovery, getting businesses back open and workers back on their feet – not on new taxes and spending that will slow recovery. New taxes…will place our community and businesses of all sizes at a disadvantage in the region and country as we work to recover.”

Among the July 1 letter signatories was the Downtown Seattle Association. In a July 6 statement, the organization wrote that “taxing jobs is bad public policy, and it is even more concerning as Seattle faces double digit unemployment. As the region enters a deep recession and faces near record job losses, the Seattle City Council moved forward at a rapid pace to tax hundreds of businesses to fund new city programs instead of planning for how to sustain basic city services and working on economic recovery. Job taxes are counterproductive to job creation and have a history in Seattle of being enacted and then later repealed. This tax should follow that fate.”

The ordinance will now be sent to Mayor Jenny Durkan for her signature.

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