Seattle launches first income tax on high earners

The US city of Seattle, home to Amazon, Starbucks and Microsoft, has set in motion plans to levy an income tax on wealthy residents with the aim of making the tax structure fairer to the lower paid

The Seattle city council has voted unanimously to apply a 2.25% tax on total income above $250,000 (£194,000) for individuals and above $500,000 (£389,000) for married couples filing their taxes together.

There would be no tax on incomes below this level and in a statement the council said the move ‘is intended to reduce regressive taxes such as property taxes, and finance priorities like addressing the homelessness crisis and offsetting federal budget cuts’.

The city, which is the largest on the north west coast and one of the five fastest growing cities in the US, estimates the tax would raise about $140m a year and cost $10m to $13m to set up, plus $5m to $6m per year to manage and enforce.

The legislation requires the funds be used to lower the property tax burden and the impact of other regressive taxes; replace federal funding currently received by the city that may be lost due to federal budget cuts; provide public services such as housing, education, and transit; creating green jobs and meeting carbon reduction goals; and implement and administer the tax.

Seattle is the biggest city in Washington state. Currently neither Washington nor any city in the state collects an income tax, leading to claims that the tax system is the most regressive in the US.

Seattle city council member Lisa Herbold, one of the co-sponsors of the bill bringing in the tax, said: ‘Seattle is a progressive city, but you wouldn’t know it by looking at our regressive tax structure, and that includes the taxes paid by small businesses. 

‘When our poorest households are paying 16% of their income in state and local taxes while our highest earners are paying only 2.4%, we have a very clear problem. Today we are taking a step in the right direction, toward tax fairness.’

The council says a poll carried out in June suggested 66% of Seattle residents supported a high earner income tax. However, the proposal is likely to be challenged by a number of Washington DC-based groups which are opposed to local income taxes.

Seattle city council says unless challenged in court, the income tax on high earners will apply to income earned after 1 January, 2018. Collection of 2018 taxes will begin 15 April 2019. A finalised set of rules for the new tax will be available by November 2018.

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