Lawsuit Says Seattle's 'Tax-the-Rich' Measure Violates State Constitution
August 09 2017 - 6:22PM
Dow Jones News
By Zusha Elinson
A new tax-the-rich measure in Seattle was hit with its first
legal challenge Wednesday.
The new Seattle measure, passed by the city council in July,
would impose a 2.25% tax on any income over $250,000 or above
$500,000 for couples filing jointly. It is expected to impact about
9,000, or 2%, of the city's taxpayers.
A lawsuit filed by the Freedom Foundation, a conservative think
tank, on behalf of 19 Seattle citizens, alleges the measure
violates the state constitution as well as restrictions on cities
to impose such taxes.
Backers of the tax welcome the suits, because they believe a
court ruling in favor of the tax will pave the way for a statewide
income tax.
The battle in the state courts could lead to a fundamental
change to the unique politics of Washington state, a
liberal-leaning state with a longstanding aversion to taxing
income.
A similar measure lost in the capital city of Olympia last year,
and a tax-the-rich statewide initiative was voted down in 2010.
Washington is one of seven states in the country, including
Florida, Texas and Wyoming, without an income tax.
The last time voters passed a graduated statewide income tax in
Washington it was struck down by the state Supreme Court in 1933 as
unconstitutional. The state constitution requires property be taxed
at a uniform rate, which the court said applied to income in
turning down the tax.
"This tax is illegal and we are confident an independent
judiciary is going to uphold the law, is going to uphold 100 years
of precedent," said David Dewhirst, litigation counsel for the
Freedom Foundation.
Seattle City Attorney Pete Holmes said he believes city will be
able to persuade the state's top court that the 1930s decision was
in error. The state Supreme Court's attention to current events in
recent years, including a ruling that the state was failing to
adequately to fund public schools, means the court could be more
receptive to taking another look at the income tax issue, he
said.
"We've acknowledged that this a tenuous legal path forward, but
we nonetheless believe it's viable," said Mr. Holmes.
David DeWolf, a Gonzaga University School of Law professor
emeritus, said the state's highest court would now be more open to
an income tax measure, provided it was statewide and applied to a
broader swath of the population, not just a few wealthy
residents.
But Mr. DeWolf predicted courts would be skeptical of the
Seattle tax because of the restrictions on cities imposing taxes
and because of how many people are exempted from paying.
"When you impose a tax it needs to be uniform," he said.
The Seattle economy is booming with unemployment hovering around
3%, and the city has a balanced budget. Yet as housing prices have
soared, homelessness has too.
The tax would bring in about $140 million every year for the
city. The money would be used to fund affordable housing, education
and transit services, and replace federal funding that might be
lost because of federal budget cuts.
Backers of the tax say they want the rich to pay their fair
share. The state has the most regressive tax system in the nation
as it raises revenue from sales, property and other taxes,
according to the Institute on Taxation and Economic Policy, a
nonpartisan research group.
The state's poorest 20% of residents, or those making less than
$21,000 a year, pay 16.8% of their income. The richest 1%, or those
making $507,000 or more, pay 2.4% of their income, according to the
group.
"Seattle is challenging this state's antiquated and
unsustainable tax structure by passing a progressive income tax,"
said Seattle Mayor Ed Murray when the measure passed.
Write to Zusha Elinson at zusha.elinson@wsj.com
(END) Dow Jones Newswires
August 09, 2017 18:07 ET (22:07 GMT)
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