Welcome everyone.
Thank you for being here today.
The people of Seattle have suffered too long from one of the most regressive tax systems in the nation.
Tax reform to achieve tax fairness is long overdue.
So I'm introducing legislation today to eliminate our regressive and arbitrary tax on everyone's drinking water and replacing it with a reasonable local 2% capital gains excise tax to match the rules of the new state law.
The top 1% can afford to pay this 2%.
Adopting a more fair and progressive capital gains tax would ensure that no one has to pay taxes for their drinking water again, making this the first time Seattle has proactively eliminated a regressive tax.
This tax reform plan eliminates the need for one of our more regressive forms of taxation, the utility tax on water.
As our system currently stands, households and businesses are not only charged for the cost of the water from Seattle Public Utilities, but also taxed on that same water by city hall at an arbitrary rate of 15.54%.
This water tax is incredibly regressive, meaning the burden as a percentage of income falls hardest upon low-income households who have to spend a larger portion of their income on this basic need.
The revenue from the regressive water tax flows into the city government's general fund, which supports various city-funded operations.
So to offset this loss of revenue by repealing the regressive water tax, I'm also introducing a local 2% capital gains tax.
So matching the new state law, this new local tax would apply only to a very small number who gain more than $250,000 in a single year.
from the sale of assets, such as stocks and bonds, which fully exempts retirement savings and fully exempts real estate transactions, just like the state law.
So I look forward to hearing feedback on this tax reform legislation, and I look forward to working with my colleagues to get this done this year, because I know many of them are also eager to do more to make our system less regressive and more fair for Seattle.
So now I'm going to go through three poster boards here.
Some of the material will be repeated.
But first, we want to emphasize here that this is something you don't want to be number one in.
You don't want to be number one in the most regressive tax system in the nation.
And that's where we are in Washington.
That's where we are in Seattle.
Regressive taxes where the people who have the lowest incomes pay a greater portion of their household income for the tax.
So what are we going to do about it?
We are going to knock over this poster.
So what we can do is to introduce tax reform.
So what that means is if we have a more progressive tax, we at the same time get rid of a regressive tax.
This is a revenue neutral proposal, and it provides more credibility for City Hall if we eliminate a regressive tax when we introduce a progressive tax.
So the state government, why now?
The state government, as you know, passed a capital gains excise tax, and that recently survived a challenge all the way up to the Washington State Supreme Court.
We also have the full year of tax revenue at the state level, so we have an idea of how much revenue is coming in.
So for Seattle, to piggyback on that state law and to introduce a 2% capital gains excise tax here, we can raise at least $40 million, which is that $40 million is how much we would need to offset the revenue from repealing the regressive water tax.
So today, here we are, we're introducing the legislation.
There are two pieces of legislation, two council bills, one to eliminate the aggressive water tax and the other to do the progressive excise tax.
So plenty of time to debate this during the summer, and then If we move quickly, the mayor could sign it as early as the fall.
It is also completely fine to have this discussed during our fall budget process.
But we do want to get it done this year.
And you need to get it done this year because the authority locally has to be in place by January 1st, 2024. And then you have that full tax year for those capital gains to be earned and quantified.
And then at the beginning of 2025, We collect that tax revenue and eliminate the water tax permanently in Seattle, the first time that's ever been done in Seattle to actually eliminate a regressive tax.
So the problem, solution, problem, harmful regressive taxes.
These regressive taxes include utility taxes.
We're probably most familiar with sales taxes being regressive.
And that means that everybody pays, but the lowest income households pay a greater portion of their income for that.
So if we're going to have a more progressive system, we need to start to eliminate these taxes as well as just adding on new taxes.
But to offset this revenue, we do want to introduce the progressive tax, a progressive tax.
Here, the capital gains excise tax has been tried and tested, and it works.
And so you see not everyone will benefit from a reduction in the water tax.
Who pays this tax?
Very small number of people who are earning more than $250,000 in a single year.
And again, that exempts retirement funds.
It exempts real estate transactions.
And lower income households will get the benefit because we're removing the regressive tax up here.
So happy to take some questions.
Yes, Sarah Grace.
40 million is the amount that comes in currently with the water tax.
Is there a way to estimate how much would actually come in with the capital gains tax?
Yes, so we have preliminary estimates now, basically using the zip codes of the folks who have paid at the state level.
And they're very rough numbers now, but it is the equivalent that if it's a 2% capital gains tax within Seattle, that'll generate at least $40 million.
We want to have a little bit of a cushion there to set up the program administratively, and if the revenue goes up and down, we want to make sure there's enough in there to fully remove permanently the regressive water tax.
Can you share what that rough estimate and that cushion is?
Well, it's still being determined.
What we know now is that the 2% far exceeds the $40 million, or comfortably exceeds the $40 million.
Yes.
Yes.
Yes.
OK.
Do I understand correctly that people will still pay the water utility tax in 2024 while you collect the first round of the capital gains tax?
And then 2025, in the first year, people will leave from the utility tax?
Well, the, we will collect, it'll happen at the same time, the collection and the removal of the utility tax will happen at the same time.
And that'll be at the beginning of 2025. The reason we need to adopt it this year is that taxpayers need to know that in 2024, everything they're earning is going to be taxed at the end of the year.
So 2024 is really a year to quantify what's happening to people's capital gains.
And then we'll have the number at the end of 2024. We'll actually collect the revenue in 2025, which enables us to remove the water tax.
The legislation, though, the way it's written is it has an effect, it would be passed this year, but the water tax would have an effective date of January 1st, 2025. Well, I think that those who may be concerned about a new tax, that's why we're doing this in a revenue neutral way.
We're doing this in a way to increase fairness overall.
We're doing this in a way where we actually remove a tax for the first time, which I think will give us some more credibility.
Rather than just taking 100% of the money and spending it, we are taking the money to make it a more progressive system.
And everybody is going to benefit from removing the water tax.
Everybody benefits from that.
So it's a shared benefit, but it's more progressive overall.
Why do this when your term's ending?
Why publish now?
Well, I'm really, so the utility taxes have been something that have bothered me since I started.
And I chair the committee that has these utility taxes in there.
The Seattle Public Utilities operation is monitored and overseen by my committee.
And really, I was waiting to see, would this new capital gains tax survive the court challenge?
Do we know how much money is coming in?
So we wanted to be methodical about when to do it.
Would the revenue go back to the general fund to replace the utility tax, and did you consider making the percentage even more in excess to help offset concerns about the general fund revenue?
Thank you.
Yes, so the money raised from the capital gains excise tax would go into the general fund.
There are currently no restrictions on that in the legislation, except that it's meant to replenish the revenue loss from the water tax.
And we are very confident that the 2% is more than sufficient to cover whatever fluctuations there might be in the capital gains excise tax.
Yes.
When I spoke to the other side of the original Capital Gains text, there was a lot of talk about a slippery slope and that this probably wouldn't be the only one, and here we are.
Is there anything that you can say to that about the possibility of this being a continuing trend in text?
I think that's all the more reason we want to start by eliminating a tax that impacts everybody.
So everybody will benefit from this, but the utility tax is regressive.
So we're leading with prudence and fiscal accountability, fiscal responsibility by removing a tax first.
There is, you know, City Hall is already looking at revenue options for the future, so it's important to have this part of the discussion that if you're going to do a progressive tax, let's try to remove some regressive taxes as well as just adding on to it.
So I think this approach of having it revenue neutral could help to alleviate those concerns.
Between this and the impact fee that you also recently brought up, it seems like you're focusing a lot on revenue right now.
Is there anything else that you're trying to do on this front before you leave office?
Well, I think that the real estate developer impact fee concept, which is allowed by state law to be used for transportation projects, for example, that is part of tax reform also.
So under the bigger umbrella of tax reform, right now, transportation projects are funded 100% by property tax.
And as we've seen with other levies, usually when the levy is renewed, the property tax level is renewed.
The dollar amount goes up.
And so to get ahead of that for 2024 for transportation, we should have a real estate developer impact fee also authorized this year.
And that'll help potentially to reduce the property taxes that are needed for the transportation package next year.
So I think that's part of the tax reform idea as well.
Okay.
Yeah, we're just going to focus on tax reform today.
I appreciate it.
I did issue a statement about that last night.
I'd rather focus on this right now.
Did you want to look at another poster?
I understand.
I understand.
It's just kind of a big deal for all of Seattle.
We would like to know what your feelings are.
We're only doing questions related to this.
Yeah, I appreciate that.
Are there any more tax reform questions?
You're not really going to talk to the people about what happened last night?
I did.
I issued a statement, and I was on the dais last night.
I had lots of words to say last night.
All right, well, that's it.
Thank you for attending, everybody.