Seattle City Council committee shelves capital gains tax proposal

The Seattle City Council Budget Committee on Thursday paused the proposed capital gains tax to wait and see if the state's version survives.

Councilmember Alex Pedersen in June proposed a 2% local expansion of the state's new tax on high-end capital gains to replace the city's water tax that everyone pays.

"As a centrist who cares about business in the city and worked really hard on public safety issues ... I support a capital gains tax," he said. "I think it's fair, and we should do it."

Pedersen, who did not seek reelection this year, also noted Washington state is known for having the nation's most regressive tax system.

Teresa Mosqueda, chair of the council budget committee, said it's best to pause as efforts to overturn the state capital gains tax are afoot, threatening Pedersen's proposal.

"I would like to leave this in the budget committee for future action and consideration, perhaps next year or the year after that," said Mosqueda, who won a seat on the King County Council earlier this month.

The Washington state Legislature in 2021 passed the 7% capital gains tax on profits over $250,000 from sales of certain financial assets. The tax targets assets like stocks and bonds, not real estate.

Any profit made under that $250,000 threshold would not be taxed.

Its constitutionality was challenged in court, but the Washington Supreme Court upheld the tax.

Mosqueda called the tax "extremely successful" and said it brought in over three times the projected revenue. She added that despite repeal efforts, she is "very optimistic" Seattle could one day impose a capital gains tax.

Seattle shouldn't do that, Peter Schrappen, a vice president with American Waterways Operators, told council members. He noted the tax would be levied on a very limited number of people. He said the city's budget has increased $1.3 billion since 2010 – twice the rate of inflation – as the city's population increased 10%.

"We'd ask you to shelve this idea and not focus a new tax on 163 people, including some marine maritime entrepreneurs, and look for other sources to solve our city's problems," he said.

With the city facing a $251 million deficit in 2025, and projected to nearly double in 2026, council members are looking at other ways to fill the coffers, including CEO pay ratio legislation. Portland and San Francisco have CEO pay ratio taxes.

"... I had high hopes that the CEO pay ratio was going to be a vehicle to help close the revenue gap," Mosqueda said.

Proponents looked at netting the revenue more quickly by amending the JumpStart tax that large companies pay on the salaries of high-income workers.

The additional assessment was to be based on who had the widest gap between the CEO pay and the median salary of workers, which meant at least a 100-to-1 ratio, Mosqueda said.

But that would have brought in only $7.5 million, and "did not seem like the best avenue to advance CEO pay ratio legislation," she said.

The 2024 council is expected to be more moderate, with socialist Kshama Sawant and fellow progressives Lisa Herbold and Andrew Lewis exiting. They're being replaced by business-backed newcomers Joy Hollingsworth, Rob Saka and Bob Kettle.

Pedersen will be replaced by another moderate, Martiza Rivera. Her more progressive opponent, Ron Davis, conceded defeat this week when final results showed him trailing by 235 votes.