As the City Council prepares to consider Mayor Murray’s plan to avoid most bus service cuts in Seattle, Councilmembers Nick Licata and Kshama Sawant seek to replace the sales tax component. The $60 Vehicle License fee would join an employer “head tax” and higher commercial parking taxes:
We expect the amount of revenue generated from these two taxes to equal what would have been collected by the increased sales tax… the head tax could be easier to administer by eliminating the array of exemptions that were previously applied when it was enforce [sic] from 2006 to 2009. As a result, the rate could be significantly reduced. The commercial parking tax would be increased from 12.5% to 17.5%.
Perhaps the best thing about these revenue sources are that they can pass with Council action, allowing immediate action, reducing uncertainty, and avoiding the effort and cost of a campaign. The parking tax has much more scope to reduce driving than a vehicle license fee, as paid parking usually exists where transit alternatives are robust. Licata also suggests that his proposal is “more progressive” than sales tax.
In spite of the earlier potential start, the September 2014 cuts would still occur.
1. Glad to see Democrats and socialists in the same room. True historic monument. Seem to recall this used to happen a lot in the old days that politicians always say were better. Dead right on this one.
2. Glad to see definite negative on sales tax. Still think that collapse of transit would be a lot more regressive than sales tax. But good to show people in the bracket to which sales tax is most regressed that a transit campaign is finally paying attention.
3. One State measure could also do a lot to improve the climate for any revenue measure anywhere, and especially in Seattle: amend the Business and Occupations tax to net income instead of gross.
A strong campaign on this one coming visibly out of Seattle could make the rest of Washington think a lot better of state’s largest city. And its transit system.
Mark Dublin
Mark,
Agree completely on the parking tax: if you’re going to fund transit, it’s the logical choice.
Disagree on the B&O. If you go to “net revenue” you’re advocating a business income tax which is subject to all the games that accountants play on the Federal level. A low gross revenue tax cannot be “gamed”; well, not without fraud which is a crime, not just a tax lien.
“Businesses” which are unable to support a 1.5% gross tax — that’s the highest B&O rate currently — are not really businesses; they’re Federal tax dodges. And the thing about “small businesses”; thr first 80,000 of revenue is exempt, even for a service provider. That means most sole proprietorships are functionally Washington tax free.
+1 Mark. B&O is massively complicated. Portland has a simple, and very progressive single flat tax rate on payroll paid to employees. Simple as deducting for Social Security tax which the computers handle quite efficiently.
A flat head tax hits your barista with the same tax as lawyers and engineers making lots of dough who can afford to chip in more at the end of the day.
Under the State B&O tax classification system, most of the occupations that fall in the “Services” category are businesses that are exempt from charging sales tax on their sales. An architect who bills a client $2000 for a set of plans doesn’t collect sales tax on the plans, but the architect does owe $30 to the State for B&O tax and $8.30 to the City for BL tax. If I buy a new TV for $2000 I will be charged $190 in sales tax on the purchase which will be split between the State and local governments.
@Anandokos — I don’t know where you get your numbers. As someone who owns a sole proprietorship, I can tell you that I paid taxes on the first 80,000. I don’t know where the cut off is, but it is much lower than that. Keep in mind, the B & O tax is very complicated, so I don’t blame you for getting it wrong. The rate varies for service, and it isn’t obvious what the service is.
Oh, and it’s not about whether businesses are “unable to support a 1.5% gross tax”, it is whether such a tax is fair. A two person company (say, a bar or restaurant) can easily go through a million dollars in gross, but barely make ends meet (after paying off employees, their lease, etc.). So, the government takes off 1.5%, which basically means they will get 1.5% less income. For many of these folks, they make less than minimum wage. Meanwhile, workers at Amazon and pull in 6 figures and guess what? No tax at all. Of course, the stock holders at Amazon really feel the pinch of that 1.5% tax. Ha! Just kidding. They hardly notice.
Ross,
There are exemptions from both the BL tax (a business with <$100,000 gross sales/year does not pay BL tax) and the B&O tax (credit for less than $71/month in B&O tax liability). If you pay your taxes electronically, you likely do not notice the exemptions.
Also, a bar or restaurant is considered retailing, which means that they would collect sales taxes and pay much lower B&O (.00471) and BL (.00215) tax rates. They would also pay all payroll taxes: Employment Security, Labor & Industries, FICA, FUTA and maybe soon, a City Head Tax.
But I would advocate that the City charge a higher tax rate for businesses that use a greater proportion of the City's municipal resources. If a restaurant offers home delivery service (via autos), they should be paying a higher BL tax than a restaurant that doesn't offer delivery. A business that sell liquor is likely using more municipal resources than a business that is "dry". Therefore, a tavern should pay a higher rate than a barber shop.
I don’t get the theory behind a restaurant which offers a delivery service using more road resources. For a dine-in or carryout restaurant, the customers drive to the restaurant; for delivery, someone drives to the customer. Yes, some customers won’t be driving, but some others may be coming from farther away, outside the delivery area. Some places offering delivery could be using lower impact transport like cargo bikes or motor bikes.
Actually, delivery is one car instead of several, and one parking space instead of several. So maybe it should get a discount for not generating third-party driving and parking demand.
Maybe a better example would be the difference between a drive-up espresso stand and an espresso stand in a neighborhood with a high walk score. The drive-up stand requires customers with autos, the other isn’t dependent on paved streets and internal combustion.
I’ve paid my state B & O taxes electronically, and I know that I’ve paid taxes on less than 80,000, let alone 100,000 a year. So, perhaps the electronic system is flawed (which is possible). Maybe I should hire an accountant to sort it all out. Yeah, that should be worth it.
Look, I have no problem with paying an income tax in this state. But I think it is stupid that we have an income tax that only applies to independent service workers (like me). It is one extra piece of paperwork BS. Nor is it fair. Why should independent service workers have to pay a state income tax while those who are are employees or owners pay nothing (even if they make a lot more)? It makes no sense, but people don’t talk about it because it doesn’t effect them. In that regard, it is one of the worst forms of taxation — few pay it, so few know it even exists or realize how unfair it is.
But the cost to a service worker pails in comparison to the cost to many a small business. Half a percent doesn’t sound like much, until you do the math. Let’s say you are an owner of small bar and you spend a million dollars on beer every year, but sell it for twice that. Sounds good, until you factor in the cost of rent, paying your employees, insurance, etc.. It turns out, when all is said and done, you only have 50 grand left (given your hours, that is probably less than minimum wage). Still, you are doing what you want, and the business is just starting. But wait, you have to pay your state taxes. Let’s see, 50,000 a year, minus deductions … Oh, shoot, I forgot I live in Washington. No income tax. So, let’s see, half a percent times a million equals … $5,000. So, basically, a guy like that pays an effective income tax rate of 10% on $50,000 or the highest in the country.
The B & O tax is an unfair tax. It would be merely a nuisance if it wasn’t so high. It wouldn’t be so high if it wasn’t for the fact that this state refuses to pass an income tax or a capitol gains tax. We have the worst tax structure in the country. It benefits the very wealthy, and punishes small businesses and the less well to do.
Regarding mic’s comment on Oregon transit taxes, it does get a little complicated if dealing with people that only work in the transit district part time.
http://www.oregon.gov/dor/BUS/Pages/faq-transit.aspx
However, Seattle’s biggest ptoblem is noted in that web site origin. They are state authorized taxes. You wind up going back to the self-destructive nature of the current people in Olympia.
@Ross,
An income or capital gains tax may be “fairer” to you but it very likely to be less “fair” to most people who currently pay nothing, And so they’re not going to vote to add it; that’s been shown to be true over and over.
I may have overstated the deduction on pure “services” income, but I know I did a little at-home contract last year that was for $21,000 and when I figured it I “used” something on the order of a quarter to a third of the exemption amount. I just divided $852 (Guy’s $71/month times 12 months) by .015 and got $56,800. For retailing or wholesaling it would be about triple that.
Let’s postulate a gross margin of 25% for the items sold. To generate before tax income of $100,000 that would require sales of $400,000. Lets just use $150,000 for the exemption on retailing/wholesaling and we’d have a net tax liability of $250,000 times .00417 or $1042.50 ($1050). Now other expenses would be deductible against a net income tax so we can’t be very “real-world” accurate, but say the net margin after all deductible expenses is 6% or $24,000. For the state to get the same $1050 would require an income tax rate of 4.3%. Oregon’s income tax reaches 9% right at $10,000 of taxable income, but Oregon has no sales tax so the Washington marginal rate would be much less. But no state which has a corporate income tax has a maximum rate lower than 4,5%, though a few do have lower initial rates. ‘
And you can’t have a “business only” income tax for sole proprietorships and partnerships because those are “individual income taxes”; the business is not a separate tax entity. At least, no state which has no individual income tax attempts to do so.
So to have what you want you’re going to have to convince all those people who work for big businesses as employees to say “yeah, I like the idea of paying an income tax”. Shall we say they’ve proven um, er, “reluctant” to agree?
Glad to see Democrats and socialists in the same room.
Yeah, the one that is marked Hypocrisy.
Rather than enact a fair and equitable property tax, both ends of the party have exposed themselves as mouthpieces for the Downtown Syndicate and have no intention of doing anything than enacting massive taxes on the poor and the middle class who need to drive.
Madder than you are about the collaborator business since Democrats are my party, not yours. Have mentioned before that number of Tea Party bumper stickers on work-dented pickup trucks says a lot.
Namely, indicates what’s behind a lot of fundamentalist violence around the world: being left poor in a world run by self-described liberals makes the un-rich want to flog and stone people just to piss off those on the side of the fence where the “keep out” sign is blank.
Haven’t seen enough of Kshama’s performance in office to know very much, John. Have met her once.
Thing I like about her isn’t her politics so much as impression she could hold her own at Question and Answer period in the British House of Commons.
Average US politician either party right now could hire out as a department store dummy without their focus groups and staff who “vets” every word they say. My time in East Africa makes me partial to Southern Indians like her. The exact positive energy that Seattle needs in order not to die.
Sikhs from the north, too. In Africa, these guys drove the bulldozers, steam locomotives, and big trucks. Up around Mt. Vernon, see huge purple semi’s whose drivers wear turbans. Brings back memories.
Also, John, nostalgia got the better of me. I was thinking of Democrats long before Tom Foley- and socialists who blew up shake mills and factories that beat up union members. But very hard to imagine IT workers doing that. Much worse to crash somebody’s computers.
Mark
John,
Have you asked your county councilmember about the possibility of funding Metro with property tax?
While we are waiting for that to happen (the happening part, not the asking part), can we collaborate on Aleks’ plan to improve frequency on the 169 and other routes you use?
Oddly enough, if you look at a map of states and property taxes, you will find many of the most Republican oriented (Texas, Oklahoma) have the highest property taxes, and the lowest sales taxes, and almost always exclude a state income tax. They also typically have much lower home prices (ie, Texas).
One State measure could also do a lot to improve the climate for any revenue measure anywhere, and especially in Seattle: amend the Business and Occupations tax to net income instead of gross.
Or, amend the sales tax so that everyone pays it.
When the company I work for purchases stuff from New York or other east coast cities, we have to go through a process to prove we are exempt from New York sales taxes, because Oregon charges no sales taxes and thus New York or the other states can not charge our company sales taxes.
If our company was located in Washington, we would have to pay the New York State sales tax when making these purchases. However, Washington is too kind to reciprocate when companies in New York purchase material from Washington.
And NO!, 747s and 737s should not be exempt from this tax.
The City collects a Business License Tax, which varies between .00215% and .00415% of gross sales. The State collects a B&O tax (.00471 of gross sales for retailing). The city council could adjust the BL tax on its own, but has no power over the state B&O tax. In Sunday’s open thread I advocated for changes to the BL tax rates to collect more money from businesses that use more of the City’s infrastructure and resources. For example, an independent software developer working out of her home currently pays the same BL tax rate as a freight hauler who drives the City’s streets in a big truck all day long.
I didn’t find any details about the head tax. I don’t remember all the deductions that were allowed under the 2006-2009 rules, but employees that walked, biked or used public transit to get to work were not subject to the head tax.
This wouldn’t avoid a campaign; the vehicle fee would still have to go to the ballot.
And they still don’t avoid the September ’14 cuts (though it looks like absolutely nothing will do that), and the head tax has exemptions for people who ride transit to work so the revenue goes down as ridership goes up, and I wonder whether a parking tax hike will work out so well since demand for most paid parking is down.
About the only thing that’s good to like from here is that it doesn’t hike the sales tax, though I’d almost rather have the sales tax than the VLF since people seem to hate it so much. At least I can (usually, depending on what the Congress does) take a deduction for sales tax paid.
I like the sales tax. It may be regressive, but I don’t think that’s such a bad thing. And besides, it brings us together more as a community because then everyone gets to share in the expense and it will give poor people much needed self-respect and a feeling like they are a part of the solution.
That’s so big of you. Solidarity with those who will suffer infinitely greater than you.
Stephen, when parents require their child to save up for an item that the kid wants, like a new bicycle, that’s regressive, correct? As a percentage of income, it’s much easier for the parents to afford the bike than the child. So then why do many parents want their child to pay for, or at least contribute, to the purchase of something like a new bike?
Low-income folks will be paying a few dollars more in sales tax, at most. The flat car tabs are the real drain on low-income folks’ income, for the 60% of low-income folks who have a car. Sam will be paying more in sales tax than the people with whom he is (just this once) standing in solidarity. Car tabs are probably about even. Didn’t he say he walks to work?
That analogy might hold water except that most parents see it as their responsibility to provide food, shelter, and healthcare to their children rather than force them to pay for those items out of their allowance.
Brent, there’s essentially zero reason why low-income folks in Seattle need a car in the first place. I’m going to call bunk on the car tab fee as regressive. It’s Pigovian.
Stephen F.: You may have noticed that Metro essentially stops running before midnight. Even light rail stops for three hours overnight. I don’t think it is rich people working those shifts that start or end during the graveyard service hole. I’m not going to tell people they need to move next to their jobs, get a better shift, not have a family, ride a bike to work, or find a different job closer to home. Good luck selling the electorate on the idea that the vast majority of poor people can live car-free. I live car-free, and I don’t buy that theory. Much as I want more people to live car-free, enabling car-free living is not a priority for Metro. And until ST sets up Link shadow service, it evidently is not a priority for ST either.
That’s an excessive exaggeration. You’re making an assumption that graveyard = low income, but where’s the data to back that up? It’s true that Metro’s night owl service isn’t anything to write home about, but it hardly leaves people stranded in the city. I’m willing to say that we should be actively forcing people out of their cars regardless of income. That’s what Pigovian taxes are meant for, and that’s what a car tab fee is.
Stephen, I don’t have to prove that *everyone* who goes to work or comes home during graveyard is poor, just that that some are and that these shifts exist. You claim that *everyone* can and should live without a car, and if they can’t, tough. Try winning votes with that argument. Be my guest.
Sorry, but a car tab isn’t going to force most people out of their car. But some people will sorely miss that $40 or $60, and continue to drive and keep their paycheck-to-paycheck job. I’ll let you explain to them how they should go about selling their car that will fetch maybe a few hundred dollars, while they are busy looking for a latte-shift job.
Seattleites have voted down a car tab before. Some are confusing the existence of an election in which Seattleites voted Yes with the universal willingness of Seattleites to vote yes for such a regressive funding approach, despite the existence of an election in which Seattleites voted No, as recently as 2011. They do so at the risk of failing to save a large chunk of bus service, when Seattleites have shown a more universal willingness to pass a property tax increase for whatever cause that is put forth. The same goes for general sales tax. If you recall any recent elections in which Seattleites voted No to a sales tax or property tax increase, please educate me.
The notion of the bag tax being Piglovian didn’t do well at the polls, either.
Stop saying “regressive”. It isn’t. Taxing car ownership should be a priority to induce people out of their car and into other active transportation means. That’s PROGRESSIVE. $60 might be enough for some people to reconsider that new car or even getting rid of their not-so-oft-use one, for others it might not be. In any case that shouldn’t stop at $60. And it shouldn’t just be a VLF or gas tax. Taxes like emissions, MVET, and mileage should also be considered.
Velo, my question is why would the parents do that to their child? It’s a regressive situation, right? What’s the parents motivation?
How very fascist of you.
The relationship between parents and child is in no way comparable to a citizen and government.
You must watch a lot of really old movies, Sam. The ones where there’s somebody playing Chopin on the piano while some girl throws her elbow over her eyes due to her mortgage being foreclosed, and the villain ties her to the railroad tracks but she gets rescued by somebody noble. And also poor.
Actually, compared to most of modern Hollywood, at least those people could act. Girls also a lot sexier with all those clothes than certain modern actresses without them.
But considering what actors really got paid in those days, wouldn’t have been a good idea to tell any of them how being poor builds community and character. There were a lot more trains going through Hollywood in those days.
Just sayin…
Mark
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After listening to Prop 1’s opponents bash the VLF as drivers paying for bus riders, I’m not particularly fond of the VLF being used as part of the funding package. In a perfect world, the VLF would be dumped 100% into street paving, freeing up existing taxing capacity for transit-sidewalks-cycletracks-whatever… We may end up with a little less bus service but maybe more sidewalks and cycletracks.
Sadly, that all probably should be part of a BTG renewal package which is a ways off…
Exactly. I see that there is some $40 million in the Seattle department of transportation budget coming from the general fund. That’s enough to make a huge dent in the cuts, if the streets part of the budget came from gasoline taxes and related fees.
That way, if the car tabs don’t pass, it’s the road budget that suffers.
I don’t think there is much of a movement to let the roads deteriorate. Car drivers, bikers, and bus riders alike don’t like potholes, if those potholes appear on the roads on which they are driving or riding. Metro’s liability costs only go up when some fragile rider gets hurt riding over a bump, and has her/his lawyers go after the government as easy money. Bikers sue for easy money, too. Really, if the issue comes to a head, capital projects (e.g. bus, bike, and pedestrian priority treatments) get delayed in order to deal with the potholes. We have neighborhoods in the outskirts of the city on a 100-year waiting list for their turn at sidewalk construction money.
And where did those screams of indignation work? Only in the suburbs, not Seattle. Seattle always knew this was about the buses and they stood by a worse proposal to fund roads instead of buses.
Seattleites stood by a proposal we sold as the only way to fund bus service. Now, we must scramble to explain why we are using the most regressive funding options on the table, when we readily admit other options exist, because … trust the mayor on this one. Yikes! Nothing against the mayor, but we need a better reason to resort to these sources, and the battle cry of Piglovianism won’t win an election in this town.
Parking taxes are Piglovian, too, are avoidable by the poor, and don’t require a public vote. Can we start there?
From the point of view of an urbanist, property taxes are also Piglovian. We want to incentivize landowners to use their land for the “highest and best” use of that land. That means going after upzonings, and maximizing the profit on that land. Hopefully, building living units pencils out well somewhere in that exercise. Simultaneously, we want property taxes to be lower out in the boonies, with some “agricultural” exemptions thrown in for land we don’t mind sitting fallow, where we prefer development not happen.
Of course, having a higher sales tax rate inside the city is the antithesis of Piglovianism. We agree on that much, at least, don’t we?
We don’t have to explain anything. You’re the one who has to explain why the option of VLF is regressive, and you’ve yet to substantiate that.
Also, it’s “Pigovian” or “Pigouvian”, not “Piglovian”.
I certainly support the parking tax, but I’m a bit more nuanced on the property tax (not that I have a problem using it). The property tax doesn’t actually encourage the highest and best use, actually do to how it is assessed. If we wanted to truly do that, we would actually tax based upon how much *isn’t* be done with a given site in relation to real development capacity, but we don’t do that. Our property tax assessments are fairly simplistic and don’t necessarily achieve superior outcomes to how we could modify them.
I have also failed to substantiate that water consists of oxygen and hydrogen, but life is too short.
Can we talk about what is most likely to pass voter muster, and not get thrown out by initiative? Can you substantiate that car tabs are a sure winner for saving bus service in Seattle at the polls? Or sales tax?
I assume we are not going to try to alter the way property taxes are assessed at the same time we are trying to get Seattleites to raise the rate. Given the current way property taxes are handled, how much would you like to see the City ask voters to approve for topping up bus service?