In October of 2022 Seattle Mayor Bruce Harrel and Councilmember Teresa Mosqueda created the “Revenue Stabilization Workgroup”. The purpose was to review and propose solutions to “the City’s increasing General Fund budget revenue gap and reliance on declining and regressive tax sources.” Convened to respond to a council bill that stated “the City Council's commitment to work with the Mayor to review Seattle’s tax structure and identify ways to make it more equitable and to raise new progressive revenue.” 

The group was not tasked with reviewing current spending trends. As the report notes:

“The Workgroup reviewed information about the City’s spending needs and trends, but Workgroup members were not asked to weigh in on changes in City spending or other structural changes such as financial policies.” 

The report notes that the 2023-24 budget was balanced due to the city’s Payroll Expense Tax. However, the report notes that Seattle’s spending trends are not sustainable without tax increases, as there is a projected $221 million gap in FY25 and $207 million further gap in FY26. 

The report does mention in their problem statement that the city can either cut expenses or raise taxes. The workgroup notes multiple strategies for addressing the imbalance, including new taxes, spending reductions, adjusting current taxes to the general fund, and growing the city’s tax base. 

The report reviews and discusses the following tax proposals:

Adjust the JumpStart Payroll Expense Tax

The employer-paid tax could be expanded by increasing the tax to those who already pay, lowering the payroll threshold for businesses so more would be captured in the tax, and lowering the salary threshold so more employees would be taxed under the policy. Additionally, they offered to change the fund restriction to move additional revenues into the city’s general fund. They note the volatility of the current program and that increases or expansion of the program could impact the ability of the city to attract or keep businesses. 

Seattle Capital Gains Tax

Given the state’s recent Supreme Court ruling on the Washington Capital Gains Tax, the workgroup offers this as a potential solution. A bill implementing a 2% tax has already been introduced. They note it would be “extremely progressive, unlikely to have a disproportionate impact on BIPOC communities, and likely to have only limited impacts on either overall economic activity or small businesses.” The workgroup acknowledges that this may lead to out-migration and have unintended impacts on revenues, property values, and the overall volatility of capital gains taxes. 

High CEO Pay Ratio Tax

This is offered as an expansion of the JumpStart Payroll Expense Tax via a surcharge on high-earning CEOs relative to median employee wages. It is noted that while it is progressive, this tax may be passed on to consumers and workers. 

Vacancy Tax

The workgroup proposes a tax on the city's vacant residential and commercial units. They note that the intent of the tax is a disincentive for property owners to leave properties vacant and would increase the housing supply. It is proposed that this would encourage more people to move into Seattle and bring additional economic activity. 

Progressive Real Estate Excise Tax

Increasing REET taxes was also proposed. This would require state action allowing the city authority to implement the tax. The tax would be progressive and imposed on high-value properties. 

Estate Tax

Similar to REET, Washington State also charges an estate tax. This tax could need to be modified to grant the city to levy additional taxes. They note this is “very progressive” and is an approach to tax generational wealth.

Inheritance Tax

The workgroup proposes a potential inheritance tax that is paid by the beneficiary, not the estate. There is no inheritance tax in Washington State and no cities in the country currently have an inheritance tax. 

Congestion Tax

A proposal is offered to toll (tax) heavily congested roads and corridors in the city to reduce congestion and pollution. In Washington State, these funds must be used for transportation purposes. The workgroup notes the theory that higher-income people are more likely to drive to Seattle, so it would be progressive. 

Income Tax

The workgroup finally proposes the option of levying a flat income tax. This is allowed under Washington’s uniformity clause. They propose in order to make this option progressive they could offer a rebate, eliminated a regressive tax, or used the taxes to spend on lower-income household.

Other Considerations

As mentioned above, the workgroup was not asked to weigh in on spending but does note in closing remarks:

“The Workgroup understands that more than half of the General Fund expenditures are related to staffing, and cuts to General Fund expenditures could entail both undesirable impacts to City employees and reductions in City services.” 

The workgroup concludes their report with other considerations the city should tax to increase taxes. These include: lobbying the state for changes in law to have more flexibility to impose progressive municipal taxes, avoiding unintended consequences that tax policy can have on business growth, and the city should develop tools to quantify the impacts of taxes on BIPOC communities. 

The final report can be found here.