After a dramatic, year-long quest to fill the $417 million budget shortfall projected for the 2025-2026 biennium, the Seattle City Council threw up their hands in the final budget committee meeting Thursday, leaving the critical decision between taxing the rich and austerity budgeting to the more conservative council that will takeover in January. 

This Seattle Process Got Hands

Last year, the Mayor and progressive revenue champ Council Member Teresa Mosqueda convened a group of representatives from business, labor, housing, etc., to recommend new taxes on wealth to pay for services the City would otherwise have to cut. 

The workgroup faced months of delays, thanks to big business’ tax aversion and general whininess, but eventually it produced a list of nine potential taxes to explore. Of the nine, Mosqueda directed central staff to write draft legislation for three ideas: An increase to the “JumpStart” payroll tax, a local capital gains tax, and a tax on the difference between a CEO’s pay and its employees.

But the council failed to balance the general fund with any of these proposals. Sure, the council passed Council Member Kshama Sawant’s budget amendment to barely increase JumpStart, but that increase will raise $20 million for mental health counselors in public schools. While funding school counselors the state should be paying for is a just cause, that money will not cover the looming budget shortfall. 

As for the CEO pay ratio tax, Mosqueda said she initially thought the City could set it up right away by attaching the fee to JumpStart, but upon further inspection the City found that tying the new tax to the existing one would only generate an estimated $7 million. So, Mosqueda would rather give the City more time to design that tax to generate revenue to its fullest potential. It's not like they already set aside a year to work on it or anything!

As for the capital gains tax, the council deferred to conservative Council Member Alex Pedersen, of all people. Earlier this year, Pedersen proposed a 2% expansion of the state capital gains tax—which imposes a 7% tax on the sale of stocks, bonds, and some other assets above $250,000—to offset the regressive water tax he sought to repeal. In other words, it would not bring in any new money to balance the budget. One council member, Council Member Lisa Herbold, had her head screwed on straight and proposed an amendment to Pedersen’s bill that would increase his tax by 1%, raising $18 million for the general fund. 

Smash or Pass: Alex Pedersen’s Capital Gains Proposal?

In a meeting Thursday, the council briefly discussed Pedersen’s proposal but decided not to vote on it. Pedersen, at the advice of Rep. Nicole Macri (D-Seattle), said the council should wait to see how the statewide initiative to repeal the capital gains tax plays out this month. 

Earlier this year, Redmond hedge fund CEO and Republican donor Brian Heywood launched signature drives for a slew of conservative ballot initiatives under the banner “Let’s Go Washington,” including I-2109, which would repeal the state’s capital gains tax. With the signature deadline just weeks away, Macri told The Stranger that if Seattle, Washington Republicans’ favorite boogeyman and a town clearly full of proto-Sawants, decided to pass a capital gains tax, it may bring more supporters to Heywood’s initiative, potentially jeopardizing the tax.

Macri also worried that Pedersen’s proposal did not have a “constituency” to defend it from the challenges it would inevitably face. The state worked long and hard to build a line of defense around capital gains, Macri said. A statewide survey, paid for by SEIU 775 and Washington Conservation Action, found that 40% of respondents support repealing the state capital gains tax and 46% do not. The opposition to the repeal initiative and thus support of capital gains increases to 56% when respondents learn that the tax funds education. Replacing a water tax, while regressive and worth replacing, may not pull on the heart strings quite the same way, Macri said. 

Sure, but why is Pedersen’s revenue-neutral capital gains tax, which has always seemed like a ploy to keep the council from using such a tax to draw additional funding, the standard we’re using here? Why not use a proposal developed by Mosqueda’s revenue workgroup, which the council specifically designed to create progressive tax options with enough support to avoid big messy repeal fights? 

Well, basically because Seattle’s progressive electeds wake up every day in a pool of sweat due to war flashbacks from when big business launched a relentless campaign against the head tax in 2017. Progressives fear the corporate overlords so greatly that they bend over backwards to accommodate them with revenue task forces that end up going nowhere, and now, in this case they’re passing the buck to a council that big business put in office to oppose taxes on the rich. 

“These things always take longer than we want,” Macri said in a phone interview. “But I share your concern that we might have missed our window.”

Holding Out for a Hero

In the Thursday council meeting, Mosqueda said that she hopes the next council picks up the capital gains tax next year if I-2109 fails, but no clear champion for progressive revenue has emerged among the incoming council. 

Among the 2024-2028 crowd, Council Member Tammy Morales appears to be the only tried and true proponent of taxing the rich. On the other side of the spectrum, incoming council members Rob Saka, Maritza Rivera, and Bob Kettle routinely show their aversion to progressive taxation, so they will likely create an anti-tax caucus with Council Member Sara Nelson. That leaves Joy Hollingsworth, Cathy Moore, Dan Strauss, and an unknown appointee somewhere in the middle.

More specifically, the new council does not have a majority in favor of a local capital gains tax. In the meeting on Thursday, Nelson said she would have voted no on Pedersen’s proposal, but focused her arguments against repealing the water tax. She thought the City should instead work to help more people enroll in the low-income discount program. 

According to pre-election interviews with Real Change, only Morales and Moore said “yes” when asked if they support such a tax. Saka, Hollingsworth, Rivera, and Strauss said “maybe.” Kettle did not appear in the video. 

For tax supporters beating their heads against a wall at the predicament the council put the City in, take that frustration and use it to keep yelling at our elected officials. 

“Once the new council starts looking at these budget reports and constituents start knocking on their doors asking them not to cut $200,000 worth of social services in 2025, I think they might start to get pretty serious about revenue pretty quickly,” Macri said.