Tag: capital gains tax

City Council, Morning Fizz, Police

Office of Police Accountability Director Out, Local Capital Gains Tax Loses Momentum, and More

1. Gino Betts, the director of the city’s Office of Police Accountability, will leave his position next month, after two and a half years on the job. According to the official account—released by Mayor Bruce Harrell’s Friday afternoon, shortly after I reported the news on Bluesky—Betts “announced his intention to resign effective December 13” and will be replaced on an interim basis by his deputy, Bonnie Glenn.

Behind the scenes, though, Betts was under heavy fire. Interim police chief Sue Rahr overturned several of his disciplinary decisions and expressed the view that he took too long to complete major investigations, including into former police chief Adrian Diaz, whom multiple women have accused him of sexual harassment, discrimination, and fostering a hostile work environment.

Diaz, appointed in September 2022, has remained on the city’s payroll since May, when Harrell announced he would be stepping down as chief. The Office of Inspector General (OIG), which is overseeing some of the investigations into the former chief, has reportedly sent one, involving allegations that Diaz used his security detail to run personal errands, to Harrell for review.

Harrell appointed Betts and Diaz in July and September 2022, respectively..

Some OPA staff complained that Betts spent too much time investigating relatively minor offenses while slow-walking major investigations like the ones into Diaz and Kevin Dave, the officer who struck and killed 23-year-old pedestrian Jaahnavi Kandula almost two years ago. PubliCola confirmed that the OPA finally wrapped up its investigation into Dave last week, but it will likely be weeks before the office recommends any formal discipline for Dave, who has remained employed by SPD since Kandula’s death in January 2023.

Rahr has expressed frustration about the city’s accountability system—telling the city council in July, for instance, that “because the OPA and some of the other other partners have so many investigations going, there’s a pretty significant time lag between when a complaint is made and when it’s resolved. … We have a lot of minor misconduct investigations that are going to OPA, and I have the perception that it’s clogging up the system to be really good. And I would like to see us figure out a way to better distinguish between those two things.

In July, a group of OPA employees delivered an anonymous complaint to several city council members, along with the OIG and Community Police Commission, saying Betts had “ignored and not investigated” complaints against Diaz, including allegations that he used his security detail for personal errands, retaliated against employees who spoke out against him, and discriminated against female employees. The letter, which PubliCola obtained from a source, also accused Betts of creating a “toxic work environment.”

Betts was the fifth director of OPA, which was previously called the Office of Professional Accountability.

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2. As we reported this week, the City Council voted 6-3 to reject a 2 percent tax on capital gains that mirrors the state capital gains tax, which statewide voters overwhelmingly upheld in the November election. Joy Hollingsworth, who voted for the new tax in the council’s budget committee (which includes all nine council members), switched her vote to “no,” dashing progressive hopes that capital gains would be an easy win just as soon as progressive Alexis Mercedes Rinck joins the council.

As I said on this week’s “Hacks and Wonks” podcast, recorded on Thursday before the vote, Rinck will be an advocate for the tax—in stark contrast to the appointed council member she defeated, Tanya Woo, whose husband is the lead trader at an investment firm. But as I also noted, Hollingsworth’s (and Dan Strauss’s) support for the tax was squishy—it’s much easier to take a controversial position when you know a bill won’t pass then cast the deciding vote in its favor.

However, I said I considered it politically risky to switch a vote on something as consequential as a capital gains tax: Council members have to consider their decision carefully and give a solid reason for doing so. Otherwise, they risk looking flaky—look at former council member Andrew Lewis, who voted against arresting people who use drugs in public before voting for it, and ended up losing to his more conservative challenger Bob Kettle anyway.

Apparently, I was wrong on this point—Hollingsworth didn’t give a substantive reason for her vote, instead offering the explanation that the budget committee (that is, the whole council) ended up with a “do not pass” recommendation, with four of nine council members supporting it. If Hollingsworth remains a no on the tax, it’s unlikely to pass.

3. Prior to Thursday’s vote, Hollingsworth dismissed her legislative director, Logan Bowers. (Unlike previous councils, where each legislative assistant typically staffed a different policy area, most of the current council members have slotted their staffers into a hierarchical structure where a “chief of staff” oversees a couple of “directors.”)

Reportedly, Bowers—an extremely online former software engineer who likes to spar with progressives on social media—had a habit of inserting himself between Hollingsworth and other council members in a way that made it unclear whether he was representing Hollingsworth’s views or his own. It’s unclear what incident, if any, prompted his sudden dismissal on Wednesday. Neither Bowers nor Hollingsworth responded to requests for comment.

Bowers, who owns several weed stores with his wife,  tried to challenge Kshama Sawant in District 3, the seat Hollingsworth now holds in 2019. He lost in the primary.

City Council, Mayor Harrell, Taxes

Capital Gains Tax, JumpStart Spending Plan Top Council’s Budget Agenda This Week

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.

 

City Council, human services, Taxes, Utilities

No Local Capital-Gains Tax This Year; Water Tax Repeal Also On Hold

By Erica C. Barnett

The Seattle City Council won’t take action on a proposed local capital gains tax or a related proposal to repeal the city’s water utility tax until after an effort to repeal the state capital gains tax, which pays for public schools, has run its course. The news of the delay, which will put both tax proposals in the hands of a mostly new council next year, came during a meeting of the council’s budget committee on Thursday.

Opponents of the state tax, which has brought in far more than expected in its first year, have filed an initiative to repeal it, part of a suite of anti-tax proposals backed by Redmond hedge fund CEO and Republican donor Brian Heywood. The campaign will have to gather more than 300,000 valid signatures to get the measure on the ballot.

Councilmember Alex Pedersen proposed repealing the water tax, currently 15.4 percent, and offsetting the lost revenues—around $40 million a year—with a 2 percent tax on capital gains, effectively replacing a regressive tax with a progressive one. The two proposals came as a package, with the capital gains tax proposal explicitly calling the tax “a more progressive method of taxation to replace revenues from regressive taxes no longer collected by The City of Seattle including, but not limited to, the tax on water.”

“People aren’t filling up my inbox complaining to me about the water tax. They’re complaining primarily about crime and homelessness and other issues that Seattle is facing and wondering why aren’t we doing more about these issues.” — City Councilmember Sara Nelson

An analysis by city council staff estimated that the capital gains tax could raise around $38 million a year, based on Seattle’s share of state capital gains tax revenues from the state capital gains tax. However, the staff report cautions, that estimate doesn’t take into account “tax avoidance” by wealthy people who can move their assets around, and is based on “an extremely concentrated tax base,” which could make it an unreliable revenue source from year to year. Just 163 people are responsible for 85 percent of state capital gains tax revenues originating in Seattle.

Councilmember Lisa Herbold proposed amending Pedersen’s proposal to increase the capital gains tax to 3 percent, which would offset the water tax and provide a modest cushion against next year’s estimated $218 million budget deficit.

After the meeting, council budget chair Teresa Mosqueda said the council decided to put off the decision on capital gains “to protect the viability of that [revenue] source,” noting that a new, local capital gains tax might increase support for the campaign to repeal the statewide tax.

Councilmember Sara Nelson said during the meeting that she showed up “prepared to vote against this today. And I just wanted to make sure that I got this on the record if it does come back” in the future, she added.

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“People aren’t filling up my inbox complaining to me about the water tax,” Nelson said. “They’re complaining primarily about crime and homelessness and other issues that Seattle is facing and wondering why aren’t we doing more about these issues.” 

If the council’s goal was “really to help low -income people,” Nelson continued, the city should be “working harder to enroll them into our utility discount program,” which provides a 50 percent discount to eligible residents. Unlike the proposed utility tax repeal, however, the utility discount program requires a lengthy application process, and is only open to very low-income residents: For single people, the cutoff is a little over $41,000 a year, and a two-person household has to make less than $54,000 to qualify.

Pedersen said his intent in proposing both tax proposals was to make the city’s overall tax system less regressive. “As a centrist who cares about business in the city and worked really hard on public safety issues here in the city, I support a capital gains tax,” he said. “I think it’s fair, and we should do it…. And I think we could also repeal the water tax. We could do both.”

Whether the council will do either is now up to the incoming council, which will no longer include Pedersen, Herbold, or Mosqueda. Nelson, who actively campaigned for several of the council’s new centrist majority, reportedly wants to be council president, a role that would give her authority over how (and whether) legislation moves through the committee process.

The budget committee did pass two proposals imposing new transparency requirements on the budget process on Tuesday, along with an ordinance requiring human services providers that receive funding for worker wage increases to spend that money only on worker pay, not for other purposes.

Courts, legislature, Taxes

Capital Gains Ruling Threatens Legislative Victory for Progressives

A Douglas County Judge ruled on Tuesday that the statewide capital gains tax, which progressive legislators passed last year, is unconstitutional. The ruling concerned two lawsuits that were consolidated into one—one by the conservative Freedom Foundation, the other by Republican former state attorney general Rob McKenna.

The decision marks a win for Washington’s ultra-wealthy, like Steve Gordon of Gordon Trucking and hedge fund manager Brian Heywood, who each contributed $20,000 to an initiative campaign to repeal the tax; former Starbucks CEO Howard Beher, contributed $5,000. Unsurprisingly, the Attorney General Bob Ferguson, a Democrat, said he would appeal the decision to the state Supreme Court.

Douglas County Superior Court Judge Brian Huber wrote in his ruling that the 7 percent tax on the sale of intangible financial assets, such as stocks and bonds, violates Washington’s constitution’s “uniformity clause” because it imposes “zero tax on capital gains below that $250,000 threshold.” The uniformity clause prohibits the state from taxing different property at different rates.

Democrats have argued that the tax is constitutional because it doesn’t assess property, but rather, the sale of property, making it an excise tax, not an income tax. Huber rejected that argument, saying the plaintiffs “properly characterized [the capital gains tax] as an income tax” in their lawsuit. And since Washington considers income to be a form of property, any income tax would need to meet the state constitution’s uniformity clause.

Washington is one of the few state’s in the country without an income tax. The state instead relies heavily on business and sales taxes to generate revenue. Democratic lawmakers have frequently criticized this model as regressive, because it means that people who earn less pay a larger percentage of their income in taxes than wealthy people pay. Democrats saw the capital gains tax as a way to reverse this regressive .

Following the judge’s decision, State Attorney General Bob Ferguson said  if the tax were ultimately struck down, the state could lose hundreds of millions in funding for childcare programs, early learning, and school construction projects. “Consequently, we will continue defending this law enacted by the peoples’ representatives in the legislature. All the parties recognize this case will ultimately be decided by the State Supreme Court. We respectfully disagree with this ruling, and we will appeal.”

—Leo Brine

legislature, State of Washington, Taxes

Amid Court Battle Over Capital Gains Tax, House Finance Chair Previews Future Reforms
State Rep. Noel Frame (D-36)
State Rep. Noel Frame (D-36)

By Clara Coyote

Following up on last year’s capital gains tax—a major legislative win for progressives during the 2021 session that puts a 7 percent tax on profits greater than $250,000 from the sales of assets, such as stocks and bonds—state Rep. Noel Frame (D-36) has her eye on comprehensive structural change for Washington’s upside-down tax code. The poorest fifth of Washington state residents pay, on average, 16.8 percent of their incomes in state and local taxes while the richest 1 percent of Washingtonians pay an average of just 2.4 percent.

A key piece of that larger agenda for Frame, the House finance chair, is a wealth tax; she introduced a version last year,  HB 1406, which the state department of revenue estimated would bring in $2.5 billion a year. Frame passed the bill out of her Finance Committee last year before it stalled in House Appropriations. Frame said she sees the senate version, SB 5426, as this year’s vehicle, and hopes the Senate Ways and Means Committee will hold a hearing on the legislation. 

Additionally, Rep. Frame said there will be smaller but meaningful bills during this year’s short (60-day) legislative session to clarify the implementation of existing legislation—for example, refining the 2023 rollout of the Working Families Tax Credit, a program Democrats passed last year, that will provide payments ranging from $300 to $1,200 to low-to-moderate-income people. Frame’s committee may also consider progressive modifications to the existing estate tax, by lowering taxes on small and medium estates while increasing taxes on the largest. This is work that first began with HB 1465, introduced (but not passed) last year.

Frame said that larger, systemic reform is emerge from the work of the multi-year bipartisan Tax Structure Work Group, which Frame chairs. Frame told PubliCola that she hopes to see bills as soon as 2023 refining an anti-displacement property tax exemption proposal meant to protect housing for mid-to-low income Washingtonians. In its final draft, Frame said, the legislation will incorporate feedback from town hall meetings where participants said renters as well as homeowners should benefit from the exemption. Frame said the work group will also figure out the details of her proposed wealth tax. 

Frame believes small businesses also need help. “We have the business and occupation (B&O) tax passed in the 1930s as a temporary measure that never went away,” Frame said. The B&O tax applies to all revenues a business takes in, regardless of whether a business turns a profit. “This disproportionately harms small businesses,” Frame said. “A central goal of the working group is finding a better alternative.”

Frame said she’s well aware that the progressive capital gains tax is already facing a court challenge but said she’s undeterred about moving forward with additional reforms that could draw more lawsuits. “Just because the rich and the powerful will threaten us every single time with a lawsuit doesn’t mean we shouldn’t ask them to pay their fair share,” she said. 

Courts, Elections, homelessness, legislature, Morning Crank, Police, Taxes

State Goes on Offensive to Save Capital Gains Tax, Police Oversight Group Considers Candidate Forum, and Compassion Seattle Plays Victim

1. Washington State Attorney General Bob Ferguson filed a motion Tuesday seeking to have a Douglas County judge throw out two lawsuits against the capital gains tax. Ferguson argues in his motion that the plaintiffs filed the suits for political reasons and don’t have grounds to sue because they don’t know yet if they’d be subject to the tax.

The capital gains tax bill (SB 5096) imposes a 7 percent tax on profits of $250,000 or more from the sale of intangible financial assets, such as stocks and bonds. The bill would go into effect in 2022, but the state would not collect taxes until January 2023. Roughly 7,000 Washington taxpayers would be subject to the tax, which would generate $415 million for the state in its first year.

Three days after the legislature passed the bill, the Freedom Foundation, a conservative think tank, challenged the law in court. Less than a month later, former attorney general Rob McKenna, along with the Washington Farm Bureau, filed a second lawsuit against the bill. Both suits were filed in conservative Douglas County.

The lawsuits say taxing capital gains is unconstitutional because capital gains are property, and all property must be taxed at a uniform rate in Washington because of a 1933 state Supreme Court decision.

However, Democrats have argued that the capital gains tax is an excise (sales) tax, not a property tax, because it is triggered by the sale of financial assets.

Ferguson argued that the plaintiffs have asked the court to settle a political dispute, rather than a legal one, noting that they “are suffering no legal harm from the tax they challenge and ask this Court to issue a purely advisory political opinion.” He also argued that the lawsuits are preemptive and speculative, since the plaintiffs don’t know whether they’ll even have to pay the tax when it goes into effect in 2023.

The state Supreme Court is also hearing arguments for a lawsuit against the state’s 2019 bank business and occupation tax (HB 2167), which was also filed by McKenna. Washington State Solicitor General Noah Purcell argued at the court on May 25 that state law prohibits lawsuits against taxes until they have gone into effect. If the court sides with Purcell, the lawsuits against the capital gains tax might have to wait until state residents actually pay the tax, which wouldn’t be until 2023 at the earliest.

State Sen. Jamie Pedersen (D-43, Seattle) said that if the court dismisses the lawsuits, it will only delay the inevitable: having the state Supreme Court reviewing the law. Democrats want the court to review the tax because they believe the court would overturn the previous ruling declaring income a form of property, which would blow the doors open for an income tax.

The next hearing for the cases is set for July 13 at 10am, with Douglas County Superior Court Judge Brian Huber presiding.

2. The future of the Seattle Police Department is front-and-center in the upcoming elections, but some members of Seattle’s Community Police Commission (CPC)—the branch of the city’s police oversight system tasked with gathering community input on police reforms—are wary of wading into electoral politics.

Reverend Harriet Walden, the commission’s longest-serving member, also opposed the candidate forum. “It’s not part of our mission,” she said.

During the CPC meeting Wednesday, CPC communications director Jesse Franz described plans that are already underway for a general election forum that the CPC plans to co-host alongside a community organization involved in criminal justice reform, such as Choose 180 or Community Passageways.

But some prominent members of the commission pushed back on the plan. Suzette Dickerson, who will represent the CPC during contract negotiations with the Seattle Police Officers Guild next year, argued that hosting a candidate forum was outside the scope of the CPC’s responsibilities. From her perspective, the commission’s role is to be a sounding board for Seattle residents’ opinions on reforms to SPD; “stepping into the political arena,” she argued, would undermine public trust in the commission.

Reverend Harriet Walden, the commission’s longest-serving member, also opposed the candidate forum. “It’s not part of our mission,” she said, adding that she isn’t confident that the CPC would allow community groups opposed to downsizing SPD to have a voice in the forum. “I think that we’re headed down a path to help social engineer the defunding the police department,” she said.

The commission’s current leaders, however, supported the idea. “To me, holding a candidate forum seems within the scope of ensuring that the community is informed about what accountability may or may not look like, in particular candidates minds,” said CPC co-chair LaRond Baker.

Though the CPC can’t endorse candidates, the commission is not a neutral player in the police oversight sphere: It recommends reforms to SPD and Seattle’s police oversight system. Recent CPC recommendations have included a ban on tear gas and removing limits on the number of civilian investigators in the Office of Police Accountability. The success of those recommendations depends on the support of the mayor, the council, and the police chief, which gives the CPC a clear stake in the outcome of the election.

“Opponents have been using increasingly violent tactics against our signature collection teams,” the solicitation for funds claims. “We must persevere, and we need your help to ensure we reach 33,060 signatures by June 25.”

3. In a fundraising email Tuesday, the Compassion Seattle campaign, which is gathering signatures to get its charter amendment on homelessness on the November ballot, claimed that several of its paid signature gatherers have been attacked by people who oppose the initiative.

“Opponents have been using increasingly violent tactics against our signature collection teams,” the solicitation for funds claims. “We must persevere, and we need your help to ensure we reach 33,060 signatures by June 25.” Continue reading “State Goes on Offensive to Save Capital Gains Tax, Police Oversight Group Considers Candidate Forum, and Compassion Seattle Plays Victim” →