Call it the ‘boss tax:’ Seattle finally finds a potent way to tax the rich | Hacker News Reader

Call it the ‘boss tax:’ Seattle finally finds a potent way to tax the rich

seattletimes.com

39 pointswallflower48 comments

Tl;dr: progressive 2.4% income tax phasing in from $150K-$400K

So, not so much a “boss tax” as it is a “rank and file” tax in big tech companies. If this were a boss tax, it would be 24% phased in linearly from $150K to $4M.

Also, Washington doesn’t have an income tax, so the top bracket would still be paying less than people that make much less pay in California...

It doesn't really phase in. It steps in with discrete jumps.

Its not an income tax, its introduced as a business tax on payroll. This is important as the WA state constitution prohibits non uniform taxation. This is what has preempted most of the previous passion based “tax the rich” schemes in Seattle.

Edit: A further clarification. A payroll tax, like B&O taxes, are paid directly by the business. They are not paid by the individual. This is a very important distinction because this tax would (presumably) be applied in the same manner to all business operating in the city of Seattle. It would not be a variable tax across individuals themselves.

More W-2 taxes, great... How does this tax the rich again?

The idea of calling this "the CEO tax" expresses an ignorance of the type of income making up a majority of CEO pay.

Likewise calling it a "pro athlete tax" works for Mariners and Seahawks but no so much for tennis and golf pros.

What this tax does is further suppress wage growth for a working class while sidestepping the wealth and income sources of much richer people.

The business is taxed, not the employees. Nothing new would appear on the individual W-2 forms issued by the business.

I have no idea what you're responding to. As Ive stated this is a PAYROLL tax, NOT a personal income tax, so I dont know where a W-2 would come in to it. A payroll tax, like B&O taxes, are paid directly by the business. This is a very important distinction because this tax would (presumably) be applied in the same manner to all business operating in the city of Seattle.

Secondly you appear to be objecting to the opinions & phrases of a random opinion piece writer who's positioning this as "tax on the rich." That's fine, and the columnists obvious slant is pretty silly IMO, but I dont know why it's relevant to my comment about the distinction between income and payroll.

The most common payroll taxes (social security and Medicare) are paid jointly by the employer and employee. Just saying “it’s a payroll tax” does not imply it went won’t show up on a W2 or be paid by the employee.

Fair enough. There is a meaningful difference in taxes based on payroll vs the individuals net income. And that's not exactly germane to this article or thread.

I should have been even more explicit in saying this is a payroll expense tax. The authors are very explicit that this is tax on the business and not any sort of tax born by the employee:

> 5.45.090.S “Payroll expense” means the compensation paid in Seattle to employees.

> 5.38.030.B The amount of the payroll expense tax due shall be the payroll expense of the business ... multiplied by the following rates:

> 5.38.030.C The tax imposed by this Chapter 5.38 is levied on businesses. A business may not make any deductions from employees’ compensation to pay for this tax.

> 5.38.090 ... taxes shall be levied upon, and collectible from, the person engaging in the business activities herein designated and that such taxes or fees shall constitute a part of the operating overhead or cost of doing business of such persons.

And this all matters because as soon as it looks like a non uniform property tax (ie a graduated income tax) it's prempted by WA state constitution Article VII Section 1.

B&O tax is levied on gross receipts; this "boss tax" is a payroll tax, levied on worker's compensation. Whether or not it is shown on a worker's paycheck as a withheld amount or not has little bearing on its general effect of depressing wages that employers are willing and able to pay to employees. My point was that this tax will tend depress real wages - which have been stagnant since the 70's - and which are the primary mode of income for many working classes - while having little effect on a much richer set of people (such as the "CEO" in "CEO tax") who derive their livelihood from business and investment income moreso than wages or compensation.

Doesn’t this just make it harder for seats companies to compete with corps in other areas? It will just drive down salaries a bit in general, probably the most in the lower paid employees because they are more replaceable

Yes, that is the general objection to taxes that are directly aligned to workers. "Taxing jobs" leads to those jobs going to other jurisdictions (like Redmond or Bellevue) where possible. I think they're hedging against this by attempting to cover any business in Seattle and levying the payroll tax on any employees who works or lives in Seattle city limits. See section 5.45.090.S.

I just skimmed the legislation but two relevant points for you are they've explicitly exempted a few business with classically high revenue and low margins, like grocery stores. The tax itself is also levied on employee payroll expenses starting at $150,000 when hte cities median income is about $65,000 last I looked. See section 5.38.030.

Seems to me this is really not as strong as an income tax.

The rich do not get their money selling hours to a company.

It should be called a "well compensated worker tax".

The linked article is a columnist opinion piece. The same newspaper has an actual article https://www.seattletimes.com/seattle-news/politics/seattle-c... from last week. And heres a link to the actual legislation http://seattle.legistar.com/LegislationDetail.aspx?ID=457678...

Two questions (related to each other):

1) Why don't they just make it an even further graduated tax going all the way up the billionaires? Instead of having to spread a 2.4% tax on everyone, why not make it start at 1% and go up to 10% for billionaires, raising the same amount of money? Save us all some tax and boo hoo, the billionaires have to pay a little more.

2) What sets the limit of what % a city can tax? I.e. what would stop a city from imposing a 50% tax on billionaires? Just what the public wants to stomach? Or is there a legal limit?

There aren't really legal limits on what taxes a US state can enact; an individual city may or may not be constrained by the state that it's inside of (eg., California cities can't raise taxes without a 2/3rds vote under Prop 13). In this case, the real constraints are Washington state law (prohibiting income taxes), and what voters/residents will stand for. A city that put a 90% tax on billionaires would find that they all left pretty quickly.

> A city that put a 90% tax on billionaires would find that they all left pretty quickly.

That's kind of hyperbole given the OP said "up to 10%".

But aside from that, don't a lot of billionaires (steve jobs, bill gates, etc) only pay themselves a $0 salary when they're rich and own their own company where they're paid in stock? So any % of $0 is still 0.

> they're paid in stock?

In the US RSU grants are treated as income. They literally show up on the W2 for the full value of the grant.

Tech billionaires tend to own the stock because they founded the company, and get "paid" from the appreciation of shares they already own. Increased tax on equity-based compensation would hit a lot of highly-paid hired hands, but not those truly rich.

Of course an increased capital gains tax might capture the founders too, as would a wealth tax (though the latter would be very hard to administer on private companies due to uncertain valuation). The major preference in the current USA tax code is for investment income over earned income (including both W-2 income and some but not all small businesses, and including equity-based compensation except (sometimes) to the extent it appreciates), not rich over poor or poor over rich.

Sure. And maybe Im fixating on the meaning of "paid" next to the use of "salary." But I dont think the individuals existing assets or capital gains really have anything to do with the common misunderstanding of how equity based compensation is taxed.

To be clear, RSUs are indeed taxed as you said. My point is that blahblahblogger's billionaires don't tend to get paid that way, but by appreciation of founder's stock (which can be captured only by a wealth tax, or by a capital gains tax if/when they sell).

You gotta start somewhere. These days in these cities where starter homes are $1.3M, taxing people who make over $150k is just shifting the burden pn what is effectively the upper middle (of the working) class.

Just a hypothetical to illustrate the point.

As apsec112 mentioned it's up to the state. And in this case Washington state has a very clear constitution and case law history that prohibits non uniform taxes, like a progressive income tax:

> All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only

That means any state law, municipal ordinance, etc, that violates that provision is going to be struck down on review. So there could be a tax that applies to income differently than real property or other assets. But the tax would have to be applied in a uniform manner across all levels of income, or uniformly against property of different values, etc.

And that history and nuance matters because Seattle cant tax income at differential rates. But they can tax businesses in a uniform manner. And assuming section 5.38.030.B passes the "uniform" and "property" challenges they can achieve almost the same thing as a municipal progressive income tax.

Washington State Constitution Article VII Section 1 https://ballotpedia.org/Article_VII,_Washington_State_Consti...

Here's a slightly dated article that has a good overview of the history https://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?...

Corporations don't pay taxes, people do. A corporate tax is shared between workers, investors and customers, the latter two can just walk away.

High marginal tax rates redistributes people, not money.

So even more tax burden on earned income from the upper middle class, rather than taxing capital gains or wealth from the truly rich.

How about we actually fix our revenue problems and adopt a VAT? https://www.taxpolicycenter.org/briefing-book/what-vat

> The value-added tax (VAT) is the world’s most common form of consumption tax, in place in more than 160 countries, including every economically advanced nation except the United States.

It’s absurd that we faff around trying gimmicks instead of using proven tools in use almost everywhere else.

First, because VATs are regressive. Imagine Alice has an income of, say, USD 50k. She's going to spend a big chunk of that on goods and services: housing, food, etc.

Bob, on the other hand, makes USD 500k. He spends maybe twice as much as Alice does -- nicer house, flash car, all that. Bob can save and invest far more than Alice with a VAT.

Second, because our governance problems are not because of a lack of money.

The US has horrible schooling, in spite of being the 4th-highest spender on secondary education in the world, yet we rank in the same cohort as Latvia. I promise you they don't spend like we do on education.

The US has a cultural problem. Part of which is throwing money at problems without actually fixing them.

Canada has federal and provincial VATs. They are not regressive, because low income people get a tax refund, quarterly.

VATs are good.

If we replaced existing taxes with VATs, and did a prebate (e.g., Yang's proposal), that'd be a lot more palatable.

Although I'd be curious what this would do to housing prices -- e.g., if you buy a house, is a VAT applied to your purchase price?

Countries with VATs seem to tend to exempt residential real estate.

As an aside there are murmurs here in Australia, particularly NSW, about moving from property stamp duties to annual property or land taxes. Principal residences are currently exempt from the 1.6% annual land tax.

We need progressive taxes! VAT is just noise if you're a billionaire, but it'll be a significant chunk of your income if you're at or below median wage.

I always liked Steve Forbes' flat tax idea -- the first ~$52K exempted (or whatever median income is) and then a flat rate of 17% beyond that no matter _how_ it's earned (W-2, dividends, long/short term gains, whatever, it's 17%). Oh and we get to scrap the tax code.

https://www.forbes.com/sites/steveforbes/2016/04/18/tax-day-...

If what you care about is funding services, which is ostensibly what we're taxing people for in the first place, billionaires are just noise; there aren't enough of them to fund anything interesting.

A flat tax is great if your goal is to just stop funding anything at all.

I thought Washington has a state law against income taxes? Isn’t this an income tax?

It’s complicated. I understand the WA state constitution prohibits non-uniform taxation (i.e. progressive taxation) which is the only real workable basis for income tax. So all attempts to introduce any form of income tax tend to be proposals for a flat 0-2% tax, with those legislative bills failing because they wouldn’t bring sufficient revenue to justify the significant overheads, such as setting up a tax system in the first place, and enforcement.

It’s a big problem with local/city-based taxes as Seattle itself is very small (700k people in a few square-miles): it would be no problem for a wannabe tax-avoider to move 10 minutes away to Shoreline, Bellevue, Medina, etc. Even if it was done at the county level, Seattle’s location in King County is too close to the border with Snohimish County. Lots of people and businesses priced out of Seattle are relocating to Everett anyway.

Credit for creativity but my hunch is the only people who will get money out of this are tax lawyers

This is yet another illegal tax (in the state of WA) that Seattle’s inept, socialist council is trying to push through. Attempts at enacting this tax have failed before because it is hugely unpopular, especially in the business community. It is primarily the work of Kshama Sawant (not Mosqueda as the article claims, who has basically revised a prior similar plan from Sawant). Sawant is an extremist council member who is part of an organization known as Socialist Alternative. The tax is so blatantly targeted at Amazon through its various rules and exemptions, that Sawant herself calls it “the Amazon tax”. The reason the tax may be pushed through now is because Seattle faces a huge budget shortfall after years of fast growing spending. Instead of trimming the fat, their solution is more taxes.

My guess is the council members supporting this hope to invite legal challenge so that an activist judge can rule in their favor despite the state constitution preventing graduated income taxes. My hope is that Amazon just declares all their tech workers remote and moves out of Seattle.

If you’re new to how these socialist organizations think, check out their self-avowed plan to infiltrate BLM early and leverage its cause for their own Marxist ends (https://www.socialistalternative.org/marxism-fight-black-fre...). They have a mentality to implement their ideology at its fullest with no compromise, and that is definitely the case with this proposed tax, given its repeated unpopularity here.

If you’re curious about Kshama Sawant specifically, check out her tweet from July 4th (https://mobile.twitter.com/cmkshama/status/12795239378445557...):

> "I've no respect for the stars & stripes, or any other flag symbolizing slavery. Triumphant socialism will haul down that flag & every other that symbolizes capitalist class rule & wage slavery. I'm a patriot, but in the sense that I love all countries."

> If you’re new to how these socialist organizations think, check out their self-avowed plan to infiltrate BLM early and leverage its cause for their own Marxist ends... They have a mentality to implement their ideology at its fullest with no compromise

They don't need to, they're pretty open about it, see here just today: https://www.reddit.com/r/ActualPublicFreakouts/comments/hluj...

If you think a 2.4% tax is extremist, in a city that already has a much lower tax burden than most tech hubs, then Seattle might not a good cultural fit. Perhaps the south or Midwest would align better?

Seattle and Washington have historically been all about smaller governments, efficient spending, and no income tax. Even without this new tax, Seattle is overflowing with tax funds from other sources, such as increasing property tax revenues. They’ve been absolutely wasteful with it all, and quality of life in Seattle has deteriorated significantly in the last decade.

Such policies and the politicians who back them are a result of a rush of recent transplants from places like SF, and are not reflective of Seattle’s true culture.

I suspect that the tax will actually be born by the corps. They would still need to pay their employees competitively to attract talent, so the only option this have is to boost pay proportionally to the tax.

I’m not entirely sure about that. The highest rate they’re talking about is 2.4%. Would you switch jobs or choose one job over another because of a 2.4% difference in comp, all else being equal?

Well, the law specifies it's paid by the corporation and may not be deducted from employee salary...

They can say that, but money is fungible. If operating expenses go up, then raises/bonuses go down.

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