Councilmember Andrew Lewis is letting his capital gains tax proposal marinate.
Earlier this month, Lewis announced a proposal that was estimated to garner a paltry $36 million annually with a 1 percent flat tax on capital gains. It was set to be finalized last week. But, Lewis told The Stranger that he was going to wait until after a 2:00 p.m. town hall Tuesday. His initial proposal had sparked conversation and suggestions citywide, so he decided to hold an official forum to hear out all the ways he could do a capital gains tax.
The hope is that he can create a more progressive and aggressive capital gains tax in order to fix Washington's ass-backward, worst-in-the-nation tax code. The city is staring down a budget hole of around $300 million in 2020. The foundation of sales taxes and B&O taxes that Seattle relies on has crumbled. Either the city will cut spending or it will find more creative ways to raise revenue.
Lewis, who is wholly opposed to an austerity budget, believes a capital gains tax on top of the proposed high-earner payroll tax proposed by Teresa Mosqueda (called JumpStart Seattle), will do the trick. Realistically, the council will need to decide on the payroll tax first before they touch Lewis' proposal, he explained.
The state legislature has tried and failed for the better half of a decade to pass a capital gains tax. The Seattle City Council is poised to deliver "given how progressive the electorate is," Lewis said. "We’re in a position where we can sustain a tax system like that." A capital gains tax from Olympia, Lewis hopes, will follow.
Lewis' tax will hinge on Tuesday's town hall. Former U.S. Labor Secretary Robert Reich, Colleen Echohawk of Chief Seattle Club Washington State Senator Joe Nguyen, and Sara Rankin, the director of the Homeless Rights Advocacy Project at Seattle University, and Lewis will discuss approaches to capital gains taxes. They'll talk about how to "structure" the tax.
Capital gains, Lewis explained, "are a form of unearned income" like stocks. The taxable part—the gain—is the difference between what a person bought a stock at versus what they sold it for. Only people who A) own stock and B) got a profit from selling those stocks will be taxed. "It's a tax on the profits you're realizing from selling stocks," Lewis explained. (Real estate sales and retirement accounts are also capital gains but won't be taxed under Lewis' proposal.)
The tricky part around all of this, and why Lewis' initial proposal was so low, is that to stick with a Washington State Supreme Court precedent (which the Court failed to redefine earlier this year) that allows income to be taxed like property (it's considered "intangible property"), capital gains can only be taxed at a rate of 1 percent across the board since property taxes must be uniform.
"The strict uniformity applies to real property, not necessarily intangible property," Lewis said. Essentially, there may be a way to sneak in more progressive brackets and higher capital gains rates for higher earners.
There's also the consideration of pivoting to exclusively an excise tax and "giving up on the whole idea of staying in the box of the property tax world," Lewis said. He said he could "mirror it" on the excise tax that failed in Olympia last year, the one that Nguyen, one of Tuesday's town hall participants, was instrumental in fighting for. Though, a Seattle version will raise significantly less money than the one proposed in Olympia.
"An excise tax is a tax on commercial transactions basically," Lewis explained, "so we’d be taxing the sale of the stock. That, in a lot of ways, is an easier way to go and it’s more progressive" since there could be different brackets of taxation baked into the tax.
"Waiting for Olympia is like waiting for Godot," Lewis laughed.
There needs to be a statewide tax eventually, but it's incumbent on Seattle to pass its own tax now and pave the way for the rest of the state. Especially since "if there is any litigation" Seattle will run through that gauntlet first. "It gets rid of the excuse of the state to not do a capital gains tax since we’ve already litigated it," Lewis said. With Lewis and Nguyen putting their heads together, there's a way to stack a Seattle tax on top of a future statewide tax.
The bill that Lewis ultimately submits for consideration will be the result of the ideas and conversations Lewis has on Tuesday. Whatever it includes, it will also need to stand up to an inevitable, lengthy legal battle.
"I don’t think we should refuse as leaders to put something out there if we think it’s going to be controversial and not try," Lewis said. "I would rather try."