“What happens in Vegas stays in Vegas” is a slogan seldom applied to other major U.S. cities.
It certainly doesn’t fit Seattle, the Northwest’s leading exporter of cultural trends, bellwether of liberal socioeconomic policy and a city always pleased to see its progressive values go viral.
A textbook example is Seattle’s income tax on high earners, which the City Council approved last summer. From the outset, supporters hoped it would light a fire under elected leaders in Olympia and reignite a dialogue about the need for a statewide income tax.
No matter that the state Supreme Court has held since the 1930s that a graduated tax on net income is unconstitutional. No matter that an income tax is like kryptonite — the third rail of Washington politics — and that state voters have soundly rejected it at least four times.
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Income tax apostles like to believe what happened in Seattle won’t stay in Seattle.
Fortunately, a judge splashed cold water on Seattle’s experiment the day before Thanksgiving, though it continues to flicker in the form of an expected appeal.
The Supreme Court is the authority that tax advocates, including new Mayor Jenny Durkan, wish to hear this case; it’s the audience they’ve sought for years, hoping it will reverse long-established precedent.
Seattle tried to wriggle around state law by arguing what the council adopted is not an income tax, rather it’s an excise tax on wealthy people privileged enough to call Seattle home; furthermore, the city argued the tax was levied on “total income” instead of net.
But King County Superior Court Judge John R. Ruhl basically said if something looks like an income tax and quacks like an income tax, it is an income tax.
“In short, the City’s tax, which is labeled ‘income tax,’ is exactly that,” he wrote. “It cannot be restyled as an ‘excise’ tax on the alternate ‘privileges’ of receiving revenue in Seattle or choosing to live in Seattle.”
The timing of Ruhl’s ruling was perfect, coming the month before Gov. Jay Inslee releases his 2018 budget proposal and six weeks before the Legislature convenes.
It should send a signal to lawmakers, in case they didn’t already get the memo, that now is not a favorable time for income tax talk — especially during a short legislative session, and an election year, to boot.
Democrats, who now control both chambers and the governor’s office, would be foolish to eye an income tax as a way to gin up new revenue for pressing obligations, including $1 billion in additional court-ordered support for K-12 schools.
Likewise, the ruling should send a clear message to Tacoma and other progressive-minded city councils known for cribbing pages from Seattle’s playbook.
A 1984 state law bans local governments from enacting income taxes, and courts won’t smile on those who ignore it. Mayor Durkan concedes that appealing Ruhl’s decision would be a longshot.
The Seattle City Council unanimously voted in July to levy a 2.25-percent tax on high earners: total annual income above $250,000 for individuals and above $500,000 for married couples filing joint returns.
City officials estimated it would garner about $140 million a year to reduce property taxes, expand affordable housing and help pay for city services — worthy goals, all.
But along with their legally flawed tax rationale, Seattle leaders chose to impose it unilaterally rather than let it go to the ballot. Maybe they had a hunch voters wouldn’t bite, after an Olympia proposal for a 1.5-percent city income tax on high earners failed at the polls last year.
The bottom line: Washington voters, including those in urban, liberal-leaning counties, enjoy living in one of the seven U.S. states with no income tax. The last time a tax proposal made the statewide ballot, in 2010, it lost in all 39 counties, with 55 percent of voters spurning it in King County and 70 percent in Pierce.
None of this is to suggest that Washington has an ideal mix of taxes. Quite the opposite. The non-partisan Institute on Taxation and Economic Policy determined we have “by far” the most regressive tax structure in the U.S.
To ensure the wealthy pay a greater share, state leaders would do well in the next few years to examine options including a capital-gains tax; they should absolutely work toward consensus on a carbon-emissions tax, which Inslee has promoted vigorously.
The door should even be kept open for an income tax if pursued the prescribed way: by constitutional amendment.
But attempting it by municipal fiat reflects an audacity that Seattle’s become known for, and Judge Ruhl did us all a favor by quashing it quickly.