Washington state residents pay both federal and state income taxes. There is no city-level income tax in the state, because municipal income taxes are banned by the state constitution.
However, some lawmakers in Seattle are challenging the notion that they cannot impose an income tax on city residents. The “Tax the Rich” movement is seeking a 2 percent tax on income above $250,000 for individuals and $500,000 for couples.
As KIRO-TV reminds us in a story about the bill, different portions of your income are taxed at different rates. In this case, the municipal tax would count against any income you make in a year above the figures mentioned above. For example, if you file as an individual and earned $350,000 the previous year, you would pay two percent of $100,000, or $2,000.
Supporters of the “Tax the Rich” movement include Mayor Ed Murray, along with city councilmembers Kshama Sawant and Lisa Herbold. Sawant introduced the bill to the council on June 12, with Herbold co-sponsoring it. Murray has previously suggested a 1.5 percent tax on wealthy taxpayers.
Regressive taxes in Seattle
The bill is in reaction to a council committee report released in May that said Seattle has the most regressive tax system in the country. A regressive tax is one that places the burden on lower-income taxpayers as a percentage of their income.
“For decades, poor and working class people in our state have paid far more of their income in taxes than the super-rich,” Sawant wrote in a blog post. Her proposed tax is meant to put more of the tax burden on the high-income tax bracket.
Bad for business?
As can be expected whenever a new tax is proposed, there are critics of this idea. Steve Ballmer, former CEO of Microsoft, predicted a municipal income tax would take jobs out of Seattle.
Other arguments are more emotional. At a city council hearing, one man called the proposal “bitter” and based on “the people’s envy against some others in our community.”
If the city council passes the bill, it would face a court challenge due to the constitutional issue. It is at least theoretically possible that Seattle would win that court battle and impose the tax.
What to do if you’re in trouble with the IRS
With all the taxes that people and corporations must pay, it is easy to make a mistake. However, as a taxpayer you have rights, and an experienced tax attorney can help you resolve the dispute as quickly and painlessly as possible.