Seattle could get its own baby capital gains tax

Seattle City Councilmember Cathy Moore plans to present a new idea Tuesday: A 2% capital gains tax for the city. It’s a baby version of the 7% capital gains tax voters just upheld for Washington state.

Last week, Washington voters rejected an initiative that would have repealed a capital gains tax on the state's wealthiest residents. Now, elected leaders see it as a potential model for plugging local budget holes.

Moore says Seattle's version of a capital gains tax would raise somewhere between $16 million and $51 million in its first year from a little over 800 of the city’s wealthiest residents.

“The reality is we need more revenue," Moore said. "And also, looking at the results of the national election and that context, which is — we now know there’s not going to be any federal money coming to Seattle, certainly no federal money for housing, building housing, housing assistance, or food assistance.”

The city’s tax would match the state version exactly, including its exemptions for the first quarter million dollars in profit, as well as exemptions for real estate, profits made on the sale of small businesses (in the form of a deduction), and retirement funds. It even includes the state’s exemption for profits made selling large herds of cattle, though that’s less relevant in Seattle.

A full transcript of KUOW's conversation with Councilmember Cathy Moore is below.

KUOW: Tell me why you'd like to introduce this capital gains tax for Seattle.

MOORE: So I guess I'll just start with the broader context, which is first to say, don't take proposing new revenue lightly. When I ran for City Council, I was very clear that if I were to be elected, I would come and take a very thorough and thoughtful look at the budget look for ways to create efficiencies and even cuts if necessary. But I have also been clear that I have been receptive to the idea of progressive revenue at some point, should that be necessary.

And so having been here, the Council, through the leadership of Councilmember [Dan] Strauss, has engaged in a very, I think, unprecedented analysis and review of the budget.

And we've looked under all the couch cushions as they say. And then we've also received the [inaudible] to address the $270 million deficit by transferring the payroll expense funds to the general fund. And I'm receptive to doing that.

But having said that, it became clear that we still needed more revenue. And we particularly need revenue for issues that we are not currently addressing or we are not addressing sufficiently. And in my mind, those are the need for rental assistance, the need for food assistance, for food-insecure households, and then also the need for down payment assistance to help low and moderate income renters move into and finally be able to afford their own home, which I view as very critical to both our community's health and stability and also a way to ultimately expand our tax base so we can continue to provide the level of services and amenities that our community is used to and wants to continue to have.

And so while it's not the optimum time, the reality is we need more revenue. And also looking at the results of the national election and that context, which is we now know that there's not going to be any federal money coming to Seattle, certainly no federal money for housing, building housing or housing assistance or food assistance.

We also know that the tax cuts are going to be made permanent and on Wednesday, the stock market rallied.

Related Podcast: Washington State's plan to make billionaires share the wealth

And we need to be looking at how we can move forward on our challenges in the light of the national reality and the message that many voters sent, I think, locally and nationally, which is people can't afford to own their own home. They're worried about making their basic rent or being able to pay for food. These are compelling issues that we have not really been able to address with their current funding. And so we need to look at additional resources.

KUOW: How do you know for sure that federal money would stop flowing to Seattle?

MOORE: I'm just looking at a headline now that says Trump is considering halting federal grants to police that declined to participate in mass deportations.

Seattle is a sanctuary city. I don't know a hundred percent, but I'm anticipating, I think it would be foolish to not anticipate a reduction in federal funds.

And we have a different Trump than we had in 2016, there are no longer guardrails. And there's a very different emphasis from this administration that they did not have in 2016.

KUOW: Is the rallying of the stock market another reason why you think capital gains is a good approach here? Because the city would be getting 2% of any profits over $250,000 on the sale of stock.

MOORE: I would acknowledge that stock market is a volatile revenue source because it goes up and down. But I think if you look at the trajectory of the stock market, it has over the years, continued to perform well and go up.

The other piece of this is that if my legislation is that each year we would look at how what was the revenue that was generated and then utilize that amongst the different categories.

So we're not committing ourselves to a particular [distribution plan for the revenue], unlike the payroll expense tax [Jumpstart Tax] which is currently has set percentages. My legislation does not create a set percentage. We collect the money and then we look at the needs facing us at the time and we distribute based on those particular needs and based on the resources that we collect.

We collect the money and then [afterwards] we set a percentage of what goes to rental assistance or home ownership. The legislation doesn't set that, unlike the payroll expense tax.

KUOW: I've done a lot of reporting on the Washington state capital gains tax, and I've read in your news release that this was based on that state capital gains tax. Does it include, for example, the same exemptions for small businesses, real estate, and retirement plans? You've already mentioned the exemption on the first $250,000 in profits.

MOORE: It does. It's exactly the same as the state law with the exception that ours is 2% versus 7%.

KUOW: Does it still include some of the things that don't really apply here, like the exception for sale of large herds of cattle?

MOORE: Yes, it actually does reference that because we're choosing to follow the state law.

KUOW: Have you received any sort of a response yet from people who might be paying this tax?

MOORE: No I have not. I haven't looked at my email yet.

KUOW: In Washington state, the capital gains tax was paid last time by only about 4,000 people. Not a lot compared to the size of the state. How many people do you imagine might end up paying this tax in Seattle? ​

MOORE: All of this is rough estimates. We're basing our figures on the state numbers. So 816 total [capital gains] taxpayers had a Seattle address according to the data from the state's collection in the first year.

KUOW: Do you have any estimates as to how much this could raise in its first year?

MOORE: It is very broad at this point. It's the figures we've been given from the Office of Economic Revenue and Forecast is between $16 million and $51 million. So it's a bit broad.

KUOW: What are the next steps here? Is this is part of the budget process? An amendment to that process?

MOORE: So the next step is, I have to introduce it as independent legislation. So it will be on the introduction and referral calendar this Tuesday [11-12-2024]. And then it will proceed through the budget committee. So the effective date would be January of 2025.

Correction 11/13/2024, 10:00 AM: The number of Seattle residents likely to pay the tax is 816, not 860 residents, per city council documents.