A one-bedroom unit at Heartwood Flats, a housing development in Seattle aimed at low-income renters. (Photo by GeekWire/Lisa Stiffler)
The Seattle City Council today narrowly defeated an effort to create a 2% special capital gains tax on profits over $262,000 made from the sale of stocks and bonds.
The council vote was split 4-4 on the tax, with one member abstaining.
city councilor cathy moore proposed the tax, which was designed to pay for rental assistance, offer down payment assistance for low- and moderate-income households and provide food assistance to those in need.
The budget has been carefully examined, Moore told his fellow council members, and there are no opportunities to make significant cuts, which he believes requires new funding.
“All of us here are trying to maintain a high level of service, amenities and public safety in the city, and we are not slashing and burning in any way,” he said. “That leaves us at a point where we need additional revenue.”
Some members of the technology and business community have rejected that claim and questioned the need for new taxes. They also expressed concern that the tax could harm the city’s economic competitiveness.
Others responded that the policy would not affect business and innovation, noting that states like California have a higher tax burden but maintain a vibrant tech economy.
The advice today too approved a measure which officially removes restrictions on how the Payroll Expense Tax is spent at large companies.
The tax, known as JumpStart, was originally intended to address homelessness, equitable economic development and environmental programs. It has also been used for normal fund expenses every year since it began generating income in 2021, a measure that has generated controversy given the actual intent of the legislation.
The city is working to finalize its $8.3 billion budget for 2025-26. It includes $287 million raised through JumpStart that will be used to plug holes in the regular fund.
Moore proposed the capital gains tax as a source of additional revenue that would not tax low-income residents as, for example, a regressive sales tax does.
The capital gains tax was projected to generate between $16 million and $51 million a year.
Two councilors who opposed the tax said the benefits and impacts of current spending efforts were unclear and made it difficult for them to support the new revenue stream.
Moore’s speech follows the state’s general election in which Washington voters showed overwhelming support for maintaining the state’s 7% capital gains tax that funds education.
The city tax would be implemented at a lower rate, but with identical language that limits its scope and applies only to earnings above a certain threshold, which last year was $262,000 and is adjusted for inflation. According to state tax returns this year, the city’s version would have impacted 816 taxpayers.
Former councilman Alex Pedersen proposed a comparable tax last year, and a capital gains tax was also introduced in 2021.
Those who voted in favor of the tax were Councilors Moore, Dan Strauss, Tammy Morales and Pleasure Hollingsworth. Those against were council president Sara Nelson and council members Maritza Rivera, Rob Saka and Robert Kettle.
Councilwoman Tanya Woo, who lost re-election earlier this month, abstained. The reason, she said, was due to ethical concerns because her husband is a stockbroker. Woo said he wanted to address the issue before voting, although the opportunity to vote has already passed.
In making his closing speech in favor of the tax, Moore emphasized that it was limited in scope and not an income tax. The policy would apply to a small group of Seattle residents.
“I just want to try to allay any specific fears about us going after the small pocket,” he said. “We are not at all.”
Some of the councilors who voted against the tax on Tuesday said they are open to reviewing the concept in the future.
The council will finalize the budget on Thursday.
RELATED COVERAGE: A capital gains tax proposal in Seattle draws mixed responses from tech leaders and city lawmakers
Welcome to World Today News. Our guests today are Jane Smith, a Seattle resident and tech employee, and John Doe, a local business owner. We are discussing the recently defeated proposal for a 2% special capital gains tax on profits over $262,000 made from the sale of stocks and bonds. Jane, as someone working in the tech industry, how did you feel about this tax proposal?
Jane: I was not in favor of the tax proposal. I felt that it would be detrimental to the business environment in Seattle and ultimately harm the city’s economic competitiveness. As someone who works in the tech industry, I am already taxed heavily, and adding another tax specifically for capital gains seemed unnecessary. Additionally, there were concerns about how the funds from the tax would be allocated and whether they would truly address the city’s pressing issues such as homelessness and affordable housing.
John: As a local business owner, I shared similar concerns to Jane. While I understand the need for additional funding to address the city’s issues, I believe that a special capital gains tax was not the best approach. The technology industry is a significant contributor to Seattle’s economy, and any measures that could potentially harm its competitiveness should be avoided. Are there alternative ways to generate revenue without negatively affecting businesses and their growth?
Welcome back to the show. The councilor who proposed the tax argued that it was limited in scope and would not affect low-income residents. What are your thoughts on this assertation, Jane?
Jane: I understand that the councilor’s intentions were good, but the language of the tax could have been more clearly defined. Without specific provisions in place, there was a risk that the tax could be expanded over time, potentially raising concerns about fairness. Additionally, the threshold for taxation was relatively low, which could have impacted middle-class residents who happen to have significant gains from stock sales.
John: As a business owner, I appreciate the concern about fairness and maintaining a level playing field. However, I also think that the city needs to prioritize spending and allocate resources efficiently. There are other existing taxes that contribute to public services, and perhaps a review of those systems could identify areas for better management. Can you elaborate on the city
