By Erica C. Barnett
Last week, City Councilmember Cathy Moore proposed a 2 percent local tax on capital gains—earnings from investment income—above $262,000 a year. In a statement, Moore said the tax is necessary to help supplement the JumpStart payroll tax, a marginal tax on high-income workers’ wages paid by large employers. JumpStart was originally earmarked to fund affordable housing, green jobs, and equitable development, but the proposed 2025-2026 budget would use a majority of revenues from the tax to close a gaping budget hole (more on that in a moment).
“After a thorough review of the budget and the mayor’s proposal to utilize Payroll Expense Tax dollars to cover the General Fund deficit, it’s clear that our city is still facing the need for additional revenue to address the unmet needs of thousands of households that are rent and food insecure,” Moore said in a statement. Her proposal would explicitly restrict the use of the tax to “rental assistance for rent burdened households, down payment assistance to low, moderate, and workforce households, and food assistance to food insecure households.” The ordinance doesn’t lay down specific percentages for each category, and notes that the spend plan could be subject to future amendments.
Even as Moore proposes earmarked progressive revenue, the council is poised to pass a separate budget bill that would gut the adopted spending plan for the JumpStart tax by making it optional instead of mandatory.
Since the first year the city began collecting the tax, in 2021, it’s used a portion of JumpStart revenues to backfill general-fund shortfalls, justifying these transfers with the ongoing impact of the COVID pandemic.
This year, facing a budget shortfall of more than $260 million, Mayor Bruce Harrell avoided “public-facing” cuts (and added another $100 million in spending on his own priorities, like CCTV surveillance and police emphasis patrols) by dipping deeper into JumpStart than in any previous year, with less than half of JumpStart’s higher-than-anticipated revenues going to the purposes it was created to fund. The council (whose new members ran on pledges of fiscal responsibility) piled on their own spending requests, and the result is the city’s largest budget proposal ever.
To pay for it all, elected officials appear committed to using JumpStart—which was supposed to pay for additive programs, not city obligations that would ordinarily be funded through the general fund—as a fungible source of general fund revenues in perpetuity.
Technically speaking, the bill amending JumpStart expresses the council’s “wish to maintain the intent of the original 2020 spending plan,” then Xes out that entire spending plan, replacing it with a section that says it “may be used” to support programs along the same lines as what was in the original proposal. “May,” in legislation, is the legal equivalent of “may not,” and the effect of the change is to release the council from any future legal obligation to fund the priorities laid out in the 2020 bill. It also appears to allow the city to use JumpStart to fund JumpStart-style spending, like funding for housing, equitable development, or Green New Deal-type programs that would ordinarily be paid for out of the general fund, as opposed to new programs made possible by the additive tax.
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This wasn’t unexpected. Since the first JumpStart collections began in 2021, the mayor and council have treated its spending plan like a suggestion, repeatedly adopting short-term bills that provide exceptions that have allowed the city to stave off major budget cuts without raising new taxes or cutting back on any of the city’s biggest cost drivers, like the police department’s budget. This kind of thing used to be controversial—when then-mayor balanced her 2019 budget with $6 million from the soda tax, a widespread backlash led to legislation that imposed a strict spending plan—but has become so routine that merely suggesting the city keep the commitments it made when it passed the tax is treated like an outrage by the same conservative organizations that opposed JumpStart to begin with, but now see it as a useful slush fund.
The council’s legislation (technically sponsored by the budget committee, an indication of majority support) will also eliminate an oversight committee that provides updates on the impact of the tax.
One issue with relying on JumpStart to fund basic, ongoing city services is that the tax is potentially quite volatile, because its revenues are largely based on the payrolls of a handful of large tech companies, primarily Amazon. With only a few years of data, the city is essentially just assuming revenues will continue to go up forever, without much of a visible plan for what to do if they don’t. By tying future general-fund budgets to the fate of JumpStart, the city is making a bet that tech companies won’t cut jobs in Seattle, now or in the future.
The capital gains tax suffers from a similar volatility. An analysis by the city’s Office of Economic and Revenue Forecast, which looked at state capital gains tax revenues, concluded that revenues from the tax “are very likely to fluctuate significantly for year to year and from forecast to forecast.” In 2027, for example, the forecast council concluded that depending on compliance rates, a 2 percent local capital gains tax could pull in as little as $16 million, or as much as $51 million—a huge, and somewhat unsettling, range.
The city council will hold the second of two public budget hearings tomorrow, Tuesday, at 5 pm in council chambers; find out how to attend and comment here.