In the face of a $220 million budget shortfall projected for 2025, the City’s long-awaited, budget-saving Progressive Revenue Stabilization Workgroup finally released a list of nine progressive taxes for the City Council’s consideration.
The work group, which brought together big business, developers, labor, and wonks, looked at more than 60 different taxes, referencing an analysis of 26 taxes from the Transit Riders Union (TRU). After that review, they offered basically no new approaches and very few legal ones, nor did they officially recommend any of the taxes. One task force member said the list of nine included taxes all the stakeholders could “live with.”
As The Stranger suspected, the group rehashed all the ideas floated in the City’s 2018 progressive revenue report, though they did toss an inheritance tax on the pile, perhaps to spice up conversation about an estate tax, which is similar. They also added two taxes that stretch the definition of “progressive” and one suggestion that merely tweaks an existing tax. The only “new,” legal, progressive tax they mentioned was a local capital gains tax, a popular proposal that council members have toyed with for years.
Budget Chair Council Member Teresa Mosqueda said she will now direct central staff to analyze and possibly write legislation for the only three taxes the City has the authority to implement without the state’s help: the local capital gains tax, a tax on the difference between CEO salaries and those of their median workers, and an increase to the City’s payroll tax, JumpStart, which brings in hundreds of millions of dollars from only the largest corporations to fund affordable housing and Green New Deal projects.
While the report may not be revolutionary, the real mission of the work group seemed to be to win over the Seattle Metropolitan Chamber of Commerce to avoid repeating history. In 2018, the Chamber refused to participate in the task force and then launched a vicious campaign that killed the head tax the City Council passed at the task force's recommendation. As 2018 task force member Lisa Daugaard said, without the Chamber’s buy-in, that whole saga was a “huge waste of time,” and the City cannot afford to waste any more time.
But the City may have wasted its time again, as this new group failed to make a tax-lover out of Chamber CEO Rachel Smith. Instead of considering new taxes, Smith attempted to flip the focus of the task force from revenue proposals to budget cuts. (Some task force members said the new report only came together because Smith missed some meetings, allowing them to actually focus on the charge of the work group.) Moreover, the Chamber, joined by the Downtown Seattle Association and the Commercial Real Estate Development Association, publicly staked out a bargaining position in the midst of discussions when they asked for a break from JumpStart.
Still, Mosqueda told The Stranger she will “stay optimistic” that the City will not face great opposition for the Chamber this time around.
Smith maintains the Chamber’s stance that the City needs to first work out budget inefficiencies and improve transparency before bringing in new revenue. She did not know where the City should make those cuts, but she said they should look for redundancies, programs whose growth has outpaced the City’s need, and programs that no longer align with the City’s values, which sounds no different from a regular budget process. Moreover, Mosqueda already plans to bring forward new transparency measures in September.
Though the Chamber signed the report, Smith said she’s glad that the work group clearly did not recommend these taxes. She would not say whether she or the Chamber would support any of the nine taxes until they saw a firm proposal and a budget overhaul. When asked if the Chamber would pick a fight like they did in 2018 if the City goes forward with a proposal without making major cuts first, Smith told The Stranger she didn’t have a crystal ball.
On Thursday, the City Council will convene in a special meeting to review the list of taxes. From there, Mosqueda expects central staff to bring analysis and possible legislation for the top-three taxes to the council sometime in September. As long as the Mayor and the Council treat the 2024 budget as an update to the biennium budget and limit edits to the resolution they passed in 2023, the council should have time to implement one or more of the proposals by the end of the year. That would give the City plenty of time to set up any administrative needs and start collecting additional revenue ahead of that 2025 shortfall.
If the council fails to pass something this year, the future of the progressive revenue will be in the hands of the new council, which may be much more chummy with the Chamber.
For all the real tax heads out there, follow me on this run through the taxes the City might consider.
Putting the "Jump" in JumpStart
As it stands, JumpStart raises about $300 million from businesses with a total payroll expense of about $8.1 million or more and with at least one employee that earns $174,000 or more. The tax rate ranges from 0.7% to 2.4%, depending on how much the business exceeds those markers. Unlike many of the other proposed taxes, the City could include more businesses in this tax or hike up the rate on the current taxpayers without permission from the State or voters.
As the Transit Riders Union put it, a JumpStart tweak would be one of the most “shovel-ready” options to help the City close its revenue gap and fund the priorities the council earmarked when the tax originally passed. In fact, Council Member Kshama Sawant attempted to bump up the tax rate’s range during the budgeting process last year. If they end up taking this route, it would be the most Seattle thing in the world for the council to reject Sawant’s idea only to implement it after spending months chatting about it.
But the report warned that the City does not know how reliable JumpStart will be long-term, since it draws from such a small pool of taxpayers. The work group also noted that businesses love evading taxes and could do so in this case by relocating, as Amazon threatened to do in 2018.
The work group’s list also included a City version of the State’s capital gains tax.
The State’s tax slaps a 7% fee on the sale or trade of stocks, bonds, and other assets valued above $250,000 to pay for education. As of May of its first year of collection, it has overperformed and raised more than $600 million. Projections say it could raise more than $850 million by the end of the year.
The work group suggested adding a 1% local charge. The City Budget Office estimates such a tax would raise between $25 million and $30 million a year. While that’s a far cry from the $220 million projected budget hole, the TRU analysis said it may overperform like the State’s version. But even that $25 million would be better than Council Member Alex Pedersen’s revenue-neutral version of the capital gains tax, which could end up as a competitor to a version of the tax that actually increased revenue.
Again, the report expressed concerns about avoidance and the volatility of the tax.
Eat the Rich, Low Key
The final tax Mosqueda will instruct central staff to analyze would charge businesses that pay their CEOs way more than their median workers. The report did not specify how wide the CEO-median worker gap should be to qualify or which businesses would qualify, but it suggested rolling the fee into the existing JumpStart legislation.
Other jurisdictions have implemented their own versions of the tax. For example, San Francisco charges all companies, even if their CEO lives out of town, and analysts expect that tax to generate up to $140 million every year. On the other hand, Portland generated $4 million by only taxing publicly traded companies with CEOs who live in the city.
As for drawbacks, the work group cautioned that businesses may pass some of the burden onto consumers.
The work group suggested six other taxes that Mosqueda won’t ask central staff to investigate further, probably because they are illegal or not progressive.
As in the 2018 report, the new work group listed a tax on vacant houses and apartments. As The Stranger reported, this tax does not seem to generate a whole lot of money or change the behavior of landlords. Plus, it is likely illegal.
The group included a progressive real estate excise tax, too, which was also cited in the 2018 report. That tax would require the State’s help. Reps. Frank Chopp and Nicole Macri tried to pass relevant legislation last year, and some seem optimistic that they could get it across the finish line in the next session.
The group listed an estate tax, which also showed up in the 2018 report, and an inheritance tax, which did not. Both would likely require state authorization.
The work group threw in two taxes that barely qualify as progressive, if they do at all. The first was a congestion tax, which would toll busy streets. The report cited a 2019 study that found that people with higher incomes were more likely to drive in Seattle, but that hardly makes the tax “progressive.” For instance, even though people with higher incomes are more likely to own homes in Seattle, property taxes aren’t really “progressive” because the rates don’t rise in accordance with incomes. Besides, the work group admitted they did not know how the proposal would impact low-income drivers.
In any event, environmental groups and some lefties shut down this idea when Mayor Jenny Durkan tried it. In 2021, executive director of Got Green, Jill Mangaliman, told KUOW that members of the environmental justice group “voiced concerns of the regressivity of congestion pricing towards workers, especially those who have been displaced and have to drive into downtown Seattle for work.”
Finally, the group suggested an income tax, which could raise $670 million a year. Before you get too excited, the state constitution only allows the City to impose a flat, 1% income tax rate. By definition, that is not progressive. However, the work group suggested a rebate system to help exclude low-income households and make the tax less regressive.