The Freedom Foundation, a conservative think tank, sued Seattle after its city council passed a measure in July that would place a 2.25 percent income tax on wealthier residents.
The tax was estimated to affect the 9,000, or 2 percent, of the city’s taxpayers – people who make more than $250,000, or $500,000 for couples filing jointly.
The lawsuit, filed on behalf of 19 Seattle citizens, alleges the proposed tax violates the state constitution and restrictions on cities to impose income taxes, The Wall Street Journal reported. Another group called the Opportunity for All Coalition, founded by Seattle venture capitalist Matt McIlwain, filed a lawsuit the same day, the newspaper said.
Washington is one of seven U.S. states without an income tax, and the liberal-leaning state has had a longstanding aversion to taxing income. The legal battle over Seattle’s proposed tax is seen as a litmus test for the how the state’s politics have changed.
“This tax is illegal and we are confident an independent judiciary is going to uphold the law, is going to uphold 100 years of precedent,” David Dewhirst, litigation counsel for the Freedom Foundation, told the WSJ.
The state’s Supreme Court in 1993 struck down a statewide income tax as unconstitutional. The state constitution requires property be taxed at a uniform rate, which the court said applied to income in turning down the tax.
Tax supporters say the rich need to pay their fair share. The state’s poorest 20 percent of residents, or those making less than $21,000 a year, pay 16.8 percent of their income, according to the Institute on Taxation and Economic Policy, a nonpartisan research group.
The top 1 percent, or those making $507,000 or more, pay 2.4% of their income, the group said.
The Seattle economy growing and joblessness is below the national average of 4.3 percent, but soaring housing prices are also blamed for growing homelessness.
The tax is forecast to bring in $140 million for the city – assuming that businesses don’t pick up and leave. The city passed a $15 minimum wage that has hurt the poorest workers, according to a study.
A University of Washington team studying the law's effects found that the law boosted pay in low-wage jobs since taking effect in 2015. But it also caused a 9 percent reduction in hours worked, The Seattle Times reported. For an average low-wage Seattle worker, that's a loss of about $125 per month, the study said.
"If you're a low-skilled worker with one of those jobs, $125 a month is a sizable amount of money," said Mark Long, one of the authors, told the Associated Press. "It can be the difference between being able to pay your rent and not being able to pay your rent."
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