More Taxes: Fair and Effective?

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IISC_EqualityEquityTo do better for the people of Seattle we can raise more revenue, or, alternatively, we could shift funds from underperforming programs to those that in fact do better. Alas, we almost always go for more revenue.

Our property tax rate has increased significantly, most recently because of the voter-approved Sound Transit 3 measure last November. Car tab fees have skyrocketed for the same reason.

The King County Executive has proposed raising the county-wide sales tax to fund arts, science, and cultural education and experiences.

The Mayor of Seattle has said he would like the property tax to increase again to fund urgently needed homelessness solutions. And he is proposing an excise tax on the distribution of sugary drinks, like sodas and energy beverages to fund education programs for children and families.

In this post, I want to discuss two significant questions.

First, are our taxes fair?

Second, what other near-term costs do we face and how should we fund them?

Answers to these questions can inform our decision-making going forward.

Are Our Taxes Fair?

I’ve previously written on this question here, here and here. Nothing has changed since these earlier posts. In fact, the upside-down injustice of our tax system in Washington State has only gotten worse.

Consider the annual summary of household tax burdens prepared by the District of Columbia government. The following two graphs show the impact of Washington’s tax system on a hypothetical Seattle family compared to the same family in each of the largest cities in each state across the country. Low-income residents of Seattle pay more in taxes as a percentage of their total household income (15.5% for a family earning $25,000 per year) than do Seattle’s wealthiest residents (5.1% for a family earning $150,000 per year). In fact, among America’s largest cities in each state, Seattle’s tax burden is the fourth highest for low-income families and the fourth lowest for upper-income families. That’s upside down. That’s very unfair.

Seattle family tax comparison - net tax

How about the property tax burden of Seattle residents?

The property tax is based on two factors: the rate of the tax and the assessed value of the property being taxed. Mathematically, it’s rate times assessed value.

Among King County cities over 15,000 in population, Seattle’s property tax rate is relatively low, but its median assessed value is relatively high. Thus, the median property tax bill in Seattle is near the middle of the pack, as shown in the chart below comparing King County cities.

Seattle property tax middle of pack

The following chart shows the total property tax that the median Seattle residential property owner paid from 2009 to 2017 (and that non-property owning renters paid through their monthly rent payments), including Washington State, King County and city assessments. The Seattle-only tax assessment shows separately in orange. If the Mayor’s proposed property tax increase to pay for homeless services was being assessed in 2017 (it’s planned for 2018), the typical homeowner would pay an estimated $151 for a total of $1,739.

Seattle property tax area chart

This is the tax environment we live with in Seattle. The overall tax burden is unfair to low-income families. The property tax burden, while significantly increasing, is middle-of-the-pack when compared to other King County cities.

What Other Near-Term Costs Do We Face?

Two crucially important property tax levies are scheduled for voter reconsideration next year: The Families and Education Levy and the Seattle Preschool Program Levy. Both are focused on education services, both utilize evidence-based programs, both keep close track of performance outcomes.

The Families and Education Levy raises about $33 million per year for academic enrichment, family support, and health services for schoolchildren from kindergarten through high school.

The Preschool Program Levy raises about $14 million per year to provide high-quality preschool for some of Seattle’s 3- and 4-year-olds. This Levy is part of Seattle’s “continuum of care” from birth to age five, which I discussed here. The preschool program is expected to serve up to 1,615 children in up to 85 classrooms by the 2018-19 school year. The goal is to eventually reach universal exposure, which we have previously defined as having 80% of 4-year-olds and 70% of eligible 3-year-olds enrolled.

Both of these education-related programs need their funding to continue, in my opinion. Our children deserve it. The evidence from countless studies is abundantly clear—investing in our children pays huge dividends.

Sharing the Load

As the District of Columbia report showed, lower-income families contribute a much higher share of their annual incomes to paying for Seattle services than do higher-income families. This is because sales and property taxes are collected at the same rate regardless of an individual’s or family’s resources. What makes things worse is that there is only a limited extent to which a family can scale back spending on necessities, like housing and clothing, so the taxes end up consuming a larger portion of lower-income budgets. The ultimate effect is that sales and property taxes – on which Seattle relies heavily for its revenues – hit lower-income families harder.

We can and must do better. Imagine how much more of a hand up we could be giving our children if our state and local tax system weren’t digging poorer families a deeper hole than they are already starting in. Rather than lean so heavily on regressive sales and property taxes, we could more fairly distribute responsibility for funding our public services if we shifted to more progressive taxes such as a general income tax or a more specific capital gains tax.

The wealthy in Seattle have benefited greatly from the opportunities our region provides. With a progressive tax structure, they could help take some weight off the shoulders of those less fortunate, and give back to the region to help others thrive. This may be a fairer way to fund crucial programs going forward rather than continuing to lean so heavily on the sales tax and the property tax. It’s certainly worthy of further discussion at both the state and city level.