Municipal income tax to be costly experiment

In 2010, Washington state voters declined an opportunity to impose an income tax on the state’s highest earners — $200,000 for a individuals or $400,000 for joint filers. The overwhelming no vote of 64 percent marked the fifth time an income-tax measure had gone down to defeat and signaled that this expression of voter sentiment should end the discussion.

Well, it hasn’t.

The Seattle City Council on Monday unanimously approved a 2.25 percent income tax on $250,000 income for individuals and $500,000 for married couples filing jointly. Advocates argue that the tax is a move toward fairness; with its heavy reliance on sales taxes, Washington’s revenue system is regarded as among the most regressive in the country. The Seattle tax would apply only to Seattle residents; and while it’s tempting to say what happens in Seattle stays in Seattle, this time it might not.

The council’s move guarantees a legal challenge, which is exactly what its proponents want. They see Seattle’s action as a way to challenge numerous state impediments to an income tax. The state actually had an income tax back in the 1930s, before the state Supreme Court ruled that income is property and property must be taxed uniformly. The Legislature strengthened the strictures in 1984 by barring cities from taxing net income. In addition, cities must have state authority to enact taxes.

The assumption is that a legal challenge to Seattle’s tax eventually will land in the state Supreme Court, and supporters are hoping a left-leaning court may consider the issue differently. The Seattle Times reported that advocates may claim a tax on total income differs from a tax on net income, or that income isn’t property. The move would raise about $140 million annually for the city, with set-up costs of $10 million to $13 million and annual operating costs of $5 million to $6 million. The council has a laundry list of programs that the money would support; among them is reducing property taxes in a nod to fairness.

While supporters have a point about tax fairness, their claims that the income tax is a more stable source of revenue has not been supported by the experiences of other states. Its imposition also would remove a key recruiting tool for the state’s businesses, and there are no guarantees that it wouldn’t be expanded to lower-income workers, or that the tax rate wouldn’t increase on higher-income individuals, or both.

Even if the court performs supple legal gymnastics and finds the tax legal, it would face serious political obstacles. Democratic Gov. Jay Inslee has repeatedly expressed his opposition to an income tax, as has the state’s electorate in multiple elections, so this longshot effort likely will be a futile effort that expends time and resources. In that sense, this experiment could prove to be an expensive one, not just for the 11,000 or so Seattle taxpayers that this would affect, but for the state.

* Members of the Yakima Herald-Republic editorial board are Bob Crider and Frank Purdy.