Just like Oregonians have never accepted a general sales tax, voters in neighboring Washington state have proven to be allergic to a state income tax. But at this November’s election, a city tax on high incomes is on the ballot in Olympia.
And it could launch a test case if it passes.
The ballot proposition — City of Olympia Initiative No. 1 — asks voters whether they want to tax household incomes above $200,000. The proceeds would pay for one year of community college for high school graduates from the city.
The first $200,000 of a household’s earnings would be exempt from the 1.5 percent tax rate. The “Yes” campaign, which calls itself Opportunity for Olympia, estimates about 750 Olympia households would be subject to the tax and that it would raise approximately $2.5 million per year for college grants.
City of Olympia public high school graduates or GED recipients would qualify for the equivalent of “at least one year” of community college tuition but could use the money to attend any public college or university in Washington state. The scholarship recipients would need to enroll within two years of earning their high school diploma or GED.
But the initiative really “is not about going to college, it’s about going to court,” opponent Cheryl Selby claims. She’s Olympia’s mayor.
“Their endgame is to set Olympia on a trajectory for a (state) Supreme Court battle over whether an income tax is legal,” Selby said. “It’s a constitutional argument. Where this should be happening is in our legislature. It shouldn’t be happening on the backs of a small city.”
Initiative supporters don’t dispute that the measure is likely headed to court if it passes. The way they see it though, Olympia has a chance to lead the way on tax fairness and college access. Olympia City Councilmember Clark Gilman said what happens in his hometown election will be important well beyond its borders.
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The nonprofit Seattle-based Economic Opportunity Institute crafted the blueprint for this first citywide income tax in Washington. Nearly all of the top donors backing the initiative live in the Seattle area as well.
“The money may have come primarily from the central Puget Sound area, but the initiative makes a lot of sense to people here in Olympia,” Gilman said. “We’ve spent their money to further a good cause.”
“I’m very supportive both of creating additional opportunities for young people to go to college and of rethinking our taxes and fees to make something that is more fair for more people in the community,” Gilman elaborated.
Over many decades, Washington voters have repeatedly rejected state income tax proposals placed on the ballot by the legislature or by citizen initiative. However, the liberal-leaning state capital city may view the issue more favorably. More than 4,700 local residents signed petitions to qualify the city tax measure for consideration.
The City of Olympia and the initiative proponents have already fought several rounds in court about the validity of the measure’s tax mechanism. The city attorney took the position that an income tax is “beyond the scope of the local initiative power.” A superior court judge agreed in an August ruling.
In early September, a state appeals court commissioner reserved judgment about the legality of the proposed tax, but directed that the measure be placed on the November ballot. The court commissioner stated in her ruling that issues about the scope of the initiative could be heard after the election.
A policy brief published this week by the Washington Policy Center think tank called the city income tax “legally suspect” because state law bans local governments from levying a tax on net income.
Initiative supporters say they are prepared to fund a defense of their measure in court if necessary. Opportunity for Olympia campaign spokeswoman Heather Weiner said technically speaking, “This is not an income tax. This is an excise tax on the gross income of a household.”
Mayor Selby said wealthy city residents would be “on the honor system” to pay the 1.5 percent income tax if it passes because there are no enforcement mechanisms built into the proposed law. But Councilman Gilman said he thinks the tax can be collected.
“I don’t believe that it is impossible or that it is prohibitively expensive,” he said.
Hundreds of U.S. cities, mostly in the Midwest and East, levy municipal income taxes, but they typically piggyback on state income tax returns, which is not an option for Olympia.