Income tax initiative puts hardship on city

The city of Olympia could become a legal test ground for an income tax on high earners in Washington.

Some legal issues deal with the right of a municipality to collect such a tax. There also are questions about the state constitution’s requirement for uniformity of property taxes, which past court rulings have equated with an income tax. A tax only on those with high incomes over $200,000 could be challenged in court.

Any legal challenge is a ways off. Activists with Opportunity for Olympia are collecting signatures to qualify their proposal for the fall ballot, and voters would need to approve it.

The proposal would collect a 1.5 percent tax on household incomes in excess of $200,000 per year, affecting potentially 750 families in Olympia. The estimated $2.5 million raised would pay community college tuition for local high school graduates.

No question, Washington’s tax system is upside down in the way it puts a disproportionately large burden on low earners while giving a relatively easy ride to high earners.

That is due to the state’s reliance on sales, business and property taxes with absolutely no tax collected on income or capital gains.

But the bigger issue today is whether Olympia is the right place for such a test, not whether income should be considered for taxes. A Seattle-based organization, the Economic Opportunity Institute, provided the template for the concept, and most donations so far are from outside Thurston County.

Still, it is not surprising that a small liberal bastion like Olympia was chosen.

Initiative 1098’s proposed tax on high earners drew more than 64 percent opposition statewide in 2010, and the no vote was about 60 percent in Thurston County. But in Olympia proper, voters passed it with roughly 56 percent support.

So there is a chance local voters could look favorably on such a tax again.

But there are problems with the proposal.

First, the city and state do not have a means in place for collecting an income tax. So city costs could be high if Olympia ever had to collect such a tax.

Olympia’s finance director is scheduled to brief the City Council this week on those impacts.

Second, if the initiative simply serves as a legal test, then the city is saddled with attorney costs for a measure really meant to benefit the state as a whole.

Mayor Cheryl Selby is right to raise questions about the financial hit on city resources if this goes to court.

Selby has suggested the city should create a legal defense fund to defray any city costs to defend the initiative, and initiative backers say they are looking into that.

It is an excellent idea.

Given that this proposal was cooked up to some degree by advocates in Seattle, which could just as easily have been the jurisdictional grounds for the legal fight, the city is right to look to well-heeled interests outside our community to contribute to such a fund.

This story was originally published May 16, 2016 at 7:39 PM with the headline "Income tax initiative puts hardship on city."