The income tax proposal: a good idea, but a very bad bill

Yesterday Mayor Murray and Council members Herbold and Sawant released a draft ordinance to implement their proposed income tax of 2% on income over $250,000. The idea has merit; the bill, as drafted, is frightening.

As I’ve written before, the city has a light load when it comes to property, sales and B&O taxes, since it can leverage the county and state infrastructures that implement them. But with the income tax there is no county or state infrastructure, so the city must invent the tax code, the implementation and enforcement mechanisms (and the bureaucracies to do the work), and the judicial review structures on its own.  It’s naïve to believe that it can write and review all that by its self-imposed deadline of July 10, and their draft bill shows both how difficult the task really is and how woefully unprepared they are to do take it on.

Here’s what’s wrong with it:

There is no plan. The ordinance has no effective date (which means by default it will be 30 days after the Mayor signs it). But it will take months, if not years, to staff up and implement this tax; literally nothing will be ready a month after it is signed. There is likewise no timeline for implementation, and no budget for any of the several departments that will need to implement it, including Finance and Administrative Services, the Hearing Examiner, the City Attorney, and King County Superior Court. It will take each of those departments months to prepare a budget; more importantly, they will each need to hire people now to go build their plans and budget, which means the Council needs to allocate money now so the departments can hire those planners. And while the ordinance does grant the Director of Finance and Administrative Services the authority to do the rulemaking it will take to make the income tax system run, it provides no timeline for the Director to do so.


It’s sloppy on the details.  Things I found in a quick pass through:

  • It states what the tax rate is for only three of the five categories of “filing status” listed on the IRS form 1040; it says nothing about the other two.
  • In the section describing how the $250,000 threshold amount will increase with inflation each year, it confuses the threshold with the tax rate — implying instead that the tax rate will increase annually.
  • When listing the approved uses of the tax revenues, it includes “replacing federal funding potentially lost through President Trump’s budget cuts.” There are so many things wrong with this, it’s hard to know where to start. First, Congress writes the budget; the President gets to make suggestions but has no authority to cut the budget. Second, “funding potentially lost” is completely speculative and so vague as to be utterly meaningless in the context of a tax ordinance.
  • The list of potential uses of the revenues also includes “creating green jobs.”  This is well-intentioned, but also so vague as to be almost meaningless in a law.
  • The section describing the process for requesting an extension of time to file a tax return is completely ignorant of how tax returns often work in practice for people who earn more than $250,000 per year — particularly those with more complicated investments. Many investment portfolios include more complicated investments, often with several layers of investments in smaller companies. Starting in January of each year, tax return information starts percolating up through the layers, but it often takes months to make it all the way to the top — well past the April 15th IRS filing deadline. That’s why the IRS grants a nearly-automatic extension to October to anyone who requests it and pays an estimate of what they think their tax bill will be by April 15th. Most states with income taxes automatically grant the same extension without requiring additional paperwork; if a taxpayer files for a federal extension, they get a state one as well.  If Seattle doesn’t do that, they will be processing thousands of applications for extensions every year. It’s possible that the FAS Director may decide to make such a rule, but the ordinance as currently written says that taxpayers must apply in writing separately to the city to gain an extension, and must “show good cause” as to why the extension is necessary.
  • The section on confidentiality and disclosure of taxpayers’ information and returns allows the Director of FAS to disclose “such return or tax information, for official purposes only, to the Mayor or City Attorney, or to any City agency, or to any member of the City Council or their authorized designees dealing with matters of taxation or revenue.” That is an unbelievable overreach and a huge loophole, especially for elected officials to get their hands on the tax information of political opponents or citizens that oppose them.


This ordinance dramatically expands the role of several city departments. FAS will need to grow a whole new sub-department to be a mini-IRS. The Hearing Examiner’s office, already overworked, will need to staff up to handle the additional appeals; the City Attorney’s Office, which will prosecute the cases, also will need to hire new tax attorneys. And the King County Superior Court will also see an undetermined amount of additional cases. FAS is already a sprawling bureaucracy, and is currently on-point in the city’s response to the homelessness crisis; is that the right department to build an entirely new department to administer the income tax? Likewise for the hearing examiner; this could multiply the number of cases it needs to hear every year.


There are several due-process rights issues. Overall, the ordinance seeks to recreate everything you hate about the IRS:

  • It grants FAS the right to determine the assessment on a taxpayer, which is then explicitly presumed to be correct and places the full burden of proof on taxpayers to refute that assessment.  FAS can also request any and all documents from a taxpayer, and if a taxpayer refuses to — or is unable to — provide any of them then that taxpayer is “forever barred from questioning in any administrative or court action the correctness of any assessment of taxes made by the City for any period for which such records have not been provided, made available, or kept and preserved.” So if your house burns down and you lose your documents, the city can assess you whatever it wants to and you have absolutely no legal recourse.
  • If the Director of FAS finds that a taxpayer owes taxes due to “intentional disregard but without intent to defraud” of the tax ordinance or the Director’s own rules, he or she is assessed a penalty of 10% of the unpaid taxes. If the FAS Director decides it is due to “fraudulent intent to evade” then an additional penalty of 100% of the unpaid taxes is levied. There is no definition of either of these terms. A taxpayer may appeal it to the Hearing examiner; however, “the Director’s assessment or refund denial shall be regarded as prima facie correct, and the person shall have the burden to prove that the tax assessed or paid by them is incorrect.” Similarly, the FAS Director can assess penalties of $250, $500 or $1000 for failure to file a tax return or for filing one with incorrect information, and the same rules apply.
  • The FAS Director has the discretion to cancel penalties if the taxpayer shows that the cause of the penalty was not due to “willful neglect.” However, “willful neglect is presumed unless the taxpayer shows that they exercised ordinary care and prudence in making arrangements to complete and file an accurate return and pay the tax owed by the due date but, nevertheless, failed to do so due to circumstances beyond their control.” The taxpayer must request the cancellation of the penalties in writing within 60 days of receiving notice of the penalties, and “in all cases the burden of proving the facts rests upon the taxpayer.”
  • The ordinance says that the city has the authority to enter into agreements with the IRS to audit taxpayers, either with its own staff, another public entity, or a private contractor. It specifies nothing about the audit process or limits it in any way (other than it can only look three years back), and it says nothing about a taxpayer’s right to access any information related to an audit performed on them.
  • The Director of FAS has the power to “adopt, publish and enforce rules and regulations… for the purpose of carrying out the purposes and provisions of [the tax ordinance].” It says nothing about the process by which those rules are defined, published, open to public comment, reviewed, and finally adopted, which means by default it’s the same rulemaking process FAS uses for everything else it does — like homeless sweeps.


And finally, there’s the really scary issue with this bill: violating any provision of the ordinance, or any of the FAS Director’s rules, is a criminal offense. To be specific, it’s a gross misdemeanor, punishable under Seattle Municipal Code by a fine of up to $5000 and/or up to 364 days in jail. Worse: the bill says, “liability is absolute and none of the mental states described in Section 12A.04.030 need to be proved.” That means that they don’t need to prove that you violated the tax ordinance willfully or with intent; they can throw you in jail for up to a year if you accidentally don’t file your tax return, or if you can’t pay your income tax, or if you violate any of the rules that the Director writes and publishes on his own.  That is way beyond even the IRS standard; they require a violation for not paying your taxes to be willful, and it’s only a misdemeanor (though certainly there are harsher punishments for fraud and tax evasion). But more to the point: the ordinance authorizes a debtor’s prison. 

If that weren’t enough, the ordinance makes the FAS Director and his tax agents police officers with the authority to arrest you.

Upon a determination that a person is subject to criminal prosecution under this Section 5.65.250, the Director and agents of the Director, who are commissioned as non-uniformed special police officers pursuant to Section 5.55.225, may issue citations and make arrests for criminal violations of this Section 5.65.250.

The City Council just finished a major piece of police reform legislation, and now they are considering creating a whole new army of “tax cops” in the finance department, with unprecedented authority to assess taxes and penalties, arrest people, and throw them in jail. And their actions are presumed to be correct, with the burden on taxpayers to prove otherwise. This is incredibly ripe for abuse.

And if you are thinking to yourself, “I don’t have to worry, because I don’t make more than $250,000,” consider this: FAS’s tax cops don’t have to prove that you make more than $250,000 to assess taxes and penalties against you and/or to throw you in jail; under the standard in this ordinance, they are presumed to be right. You would have to prove in front of the Hearing Examiner or a court of law that you don’t make more than $250,000.

It bears repeating: an income tax is a very good idea, particularly if it is used to offset one or more of the regressive taxes in place. But it is an incredibly difficult task for the City of Seattle to do it on its own. It must write a tax code, build up a bureaucracy, write a budget and rules, and decide how judicial review will work. This horrible bill points out many of the inherent issues, and why it will take a long time to figure out how to do it right. The City Council is off to a very bad start, and their self-imposed deadline of July 10th for passing this into law should frighten all of us.



  1. Not a good idea. Seattle does not need more taxes. We need tax cuts

    1. If done right — swapping this in to replace sales and property taxes — this would be a tax cut for almost everyone in Seattle. The US Census Bureau estimates 11,000 people in Seattle make more than $250,000. That means 690,000 people make less.

  2. You’re spot on, Kevin. The council is probably going to pass this half-baked bill without thought as to how the administration is going to implement it. Don’t forget that they JUST passed the soda tax that the Finance Department has to do the rulemaking for and even Burgess admitted that there are unknowns that is going to be up to the bureaucrats to figure out. So now they are going to pass another incomplete bill and put further burden on the same freaking department. All the departments are told to cut their budgets. Oh and let’s not forget that they passed the driver collective bargaining bill that the finance department told them was no good, and the city is being sued and having to use resources to defend it. But of course, it’s not the council that’s burdened with the ramifications of all the bills they are passing. It’s the city departments and ultimately the public.

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