As City Hall presses forward creating a levy on high earners in Seattle, mayoral candidate Mike McGinn unveiled a plan Wednesday that he said would raise new revenue for the city without the legal baggage an income tax brings with it.
The once and perhaps future mayor McGinn promised to “hold the line” against any new increases in “regressive” sales or property taxes. Instead, he said, the city can raise money immediately through taxes on large businesses.
“We know that something has to be done now to relieve the taxpayers of the burden they’ve shouldered for too long,” said McGinn in a statement. “The answer to all of our problems can’t continue to be tax increases on the very people who need the most help and who make this city thrive.” McGinn also said that he could find at least $30 million in budget cuts that could be redirected to pay for more useful city services, though he did not specify what those cuts would be.
The city has proposed, and voters have approved, a string of property and sales tax hikes in recent years. While the tax measures fund things like pre-k and transit, a growing chorus of progressives have complained that they are making it impossible for poor people to stay in the city. That was part of the motivation behind the income tax on high earners that the council will vote on Monday. However, even supporters of that plan acknowledge it will be challenged in court. McGinn—who was one of the first candidates to support the idea of an income tax—says now we can’t wait.
“Income tax, capital gains, etc., are worth fighting for, but we know that there will be legal challenges & that we need funding now,” he wrote in a tweet.
McGinn added in an interview that while he supports an income tax and similar progressive efforts, “there’s a realistic budget option that’s available right away.”
Specifically, McGinn proposes expanding the business and occupation (B&O) fee, which businesses must pay once a year in order to legally do themselves in Seattle, and resurrecting a per-employee-hour “head tax” on businesses. In both cases, he would create exemptions for small businesses (say, under 50 employees) so that bigger, more profitable businesses shoulder a greater tax burden than mom and pops.
Seattle has already begun to reform businesses taxes in the direction McGinn prescribes. Last year, the council and mayor raised the B&O tax by 3.2 percent (phased in over two years). It was the first increase since 1992.
They also amended the business license fee last year, so that bigger businesses pay more. Previously, businesses paid $55 per year if their gross revenue was less than $20,000 and double that if more. Now, there are two more tiers for bigger businesses; those earning more than half a million dollars per year pay $480, and more than $2 million per year pay $1,000, with a fifth tier coming online in 2018. In principle, there’s no reason why this tier scheme couldn’t extend even higher. Amazon, for instance, earns more than $100 million per year in total revenue.
Seattle does not have a head tax, though we did have one from 2006 to 2009. Mayor Greg Nickels and the City Council repealed the flat, per-employee-hour tax during the depths of the Great Recession in order to stimulate job growth. Since the end of the Recession, Seattle has been one of a handful of cities across the country that have received the lion’s share of economic recovery. Stimulating job growth now ranks much lower on city leaders’ priorities.
In 2014, Councilmembers Kshama Sawant and Nick Licata (for whom Councilmember Lisa Herbold was then a legislative aide) tried to resurrect the head tax, without success. In 2016, Herbold sponsored what was either a head tax or a head fee (depending on whether you supported or opposed it) to fund the Office of Labor Standards, but that failed under opposition from business interests. Rob Johnson, the deciding vote, said afterwards that he supports the head fee but wants more time to try and find compromise with business groups like the Capitol Hill Chamber of Commerce. If that doesn’t work out by the end of 2017, he told Herbold, he’ll come back and vote in favor of the head fee.
In sum, McGinn’s proposals are clearly workable, given that one is already working and the other did previously. That can’t be said for the proposed income tax.
In the longer term, McGinn says he supports the income tax and other experimental taxes, including on taxes on property speculation or vacant property. But those proposals will likely take time and may ultimately fail, on legal grounds or otherwise. “A lot of the ideas being presented will require a fair amount of work to figure out if they can be done, and they may not be able to be done,” says McGinn.
This post has been edited. An earlier version mixed up the B&O tax and the business license fee, which are distinct. Both were raised last year for larger businesses.