Stronger local tools are needed to address homelessness

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Stronger local tools are needed to address homelessness

King County payroll tax option is a good start, but more revenue is needed

By - February 13, 2020

To ensure everyone has a safe, healthy, and stable place to live, communities across Washington state need more resources to invest in affordable housing and in services for people experiencing homelessness. With one month remaining in the 2020 legislative session, lawmakers in Olympia should work quickly to improve and enact a measure that would allow the King County Council to raise money for affordable housing through a new payroll tax on many large businesses. Policymakers should allow King County to raise considerably more revenue for housing than would be allowed under the current proposal. And they should reject all proposals from some big businesses to take existing payroll tax authority away from other local governments grappling with the fallout from the housing crisis.

House Bill 2907 (and an identical measure in the state Senate) would bring us one step closer to having the tax tools needed to fund affordable housing and other investments in a more equitable way. This is especially important since Washington has the most upside-down state and local tax code in the nation. Under our tax code, the poorest households pay up to six times more of their incomes in taxes than those at the very top, and local governments are extremely limited in what sources of revenue they can collect.

Importantly, the bill includes a provision allowing impacted businesses to deduct all payroll from employees earning less than $150,000 per year. This provision means most of the taxes would likely be paid by those at the top of the income and wealth ladder. The legislation also allows the tax to be applied progressively to payroll from employees with total compensation over $150,000 per year. The tax would not apply to small businesses (those with fewer than 50 employees), grocery stores, cancer treatment centers, fuel distributors, and several other industries. And businesses could be granted a one-year hardship exemption during recessions or other unprofitable periods.

King County could not to generate nearly enough revenue to adequately address homelessness and affordable housing needs under the current proposal, however. That’s because the current bill allows for a maximum tax rate of only 0.2% of payroll. At that rate, the tax is estimated to generate about $121 million per year – far below the amount that independent analysts estimate is needed to meaningfully address homelessness in the coming years.

To generate more resources to adequately address the housing crisis in King County, the legislation should allow for a higher top tax rate on payroll from CEOs and other highly paid employees.

And legislators should reject proposals from some large businesses to add a provision eliminating cities’ existing authority to levy similar taxes to support housing and other important investments. Such a provision would unnecessarily stymie local governments’ ability to meet the needs of their residents.

Legislators have just over a month left to advance legislation that helps provide services for people who are experiencing homelessness and gets our state on track to build new affordable housing. This tool – done right – could help move our state forward.

About Andy Nicholas, Senior Fellow

Andy specializes in state budget and tax policy. Since joining the Budget & Policy Center in 2009, he has served on a Legislative Task Force on Tax Preference Reform and has conducted numerous analyses of Washington state’s tax code.

Read more about Andy