Seattle voters may get a crack at significantly rewriting the city’s tax code this fall.

Mayor Bruce Harrell and Seattle Councilmember Alexis Mercedes-Rinck want to restructure how Seattle taxes local businesses, lightening the load on the city’s smallest while raising rates on the top 10% highest grossing establishments.

The goal of the proposal, which must clear the Seattle City Council before possibly facing voters in November, is to simultaneously shift the tax burden on businesses upward and also to bring in more money to the city’s coffers in advance of yet another difficult budget season.

Rinck and Harrell also placed the new tax in the context of the Trump administration, which many local officials fear will pull back federal funds from the city while weakening the economic outlook for a trade-heavy city like Seattle. The city is looking at a $240 million deficit over the next two years.

“Without new and more progressive revenue, the council will be forced to double cut the same services that President Trump is already cutting off federal support for,” Rinck said, “and that would mean more people living on the street, more families going hungry, more mom-and-pop shops going out of business, and workers less protected from wage theft.”

But at a time when Seattle’s local economy has shown signs of vulnerability, and on the heels of tax hikes at the state level, business groups are girding for a fight. Because the tax targets gross revenue — not profit — retail and hospitality businesses with huge expenses but thin margins are likely to see higher rates. Previous tax hikes on high-grossing businesses have run into stiff opposition from local institutions like Uwajimaya, making the question politically tricky.

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Rachel Smith, head of the Seattle Metropolitan Chamber of Commerce, called reducing rates on small businesses a “fantastic idea,” but warned of hiking them on larger businesses.

“Undermining our local economy is not going to protect us from negative economic moves at the federal level,” she said. “We need to be building up our local economy.”

Depending on the type of business, Seattle levies an about 0.2% to 0.4% tax on all gross income over $100,000. The revenue source is significant, accounting for around 20% of the city’s general fund budget.

Under Rinck and Harrell’s proposal, fewer businesses would pay the tax. It would exempt all gross income under $2 million from taxes. As a result, officials estimate 76% of establishments that pay city business taxes would no longer do so, and 90% would pay less than they do now.

Larger businesses, on the other hand, would pay around 50% more. Retail, wholesale and manufacturing establishments would see their rates rise from 22 cents per $100 of revenue to 34 cents; professional services, such as law firms, would see their rates rise from 43 to 65 cents. Taken together, it’s enough not only to cover the revenue loss from exempting smaller businesses but also to add around $90 million to the city’s budget.

The tipping point, when this proposal is more expensive than current law, is just under $6 million in gross revenue.

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Progressives in Seattle have long sought ways to make the city’s tax base more top heavy — a sometimes difficult task in Washington, where local income taxes are barred.

Rinck ran on the platform of progressive revenue and said this pitch fits into that promise. She brought the idea to Harrell’s office, who took to the idea.

On its surface, it’s a surprising pairing; Harrell is not the preferred choice for mayor among the city’s progressive base. But Rinck said the matchup makes sense politically and reflects their shared goals.

“We represent different approaches to governance, but I think what we share is fundamental, and it’s a belief that Seattle works best when we work together and we find common ground on the issues that matter most to people across the city,” she said.

For Harrell’s part, his office is preparing its budget proposal for next year. Unlike previous years, he will not be able to lean as heavily on the city’s payroll tax to close the city’s deficit, leaving him with the choice of finding new revenue or making heavy cuts.

Although cuts are still likely, this proposal would lessen them.

“Mayor Harrell has faced a deficit in each of his previous three years as mayor,” said Deputy Mayor Tim Burgess, “and he’s been able to cobble together a solution for those deficits without raising taxes. But we don’t think we’ll be able to do that in ‘26 and going into ‘27.”

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The proposal has backing from labor. Katie Garrow, MLK Labor’s executive secretary-treasurer, called it “a firm stand for dignity, fairness, and economic justice.”

It also has the support of some local businesses, particularly smaller ones. In a statement, Eric Chan, owner of Jade Garden Restaurant, said, “Being able to reinvest these funds back to them would mean everything for us.”

Among Seattle’s largest business, Expedia has been the most receptive to new taxes. Richard de Sam Lazaro, Expedia’s senior director of government affairs for North America, said Wednesday, “Though mindful of the impact of further tax increases, we appreciate the opportunity to help make Seattle and its small business community more resilient.”

But while voters in recent years have shown a strong appetite for taxing large businesses, the more immediate question may be whether it gets to the ballot at all. The Seattle City Council must vote before the August primary to place it on the November ballot. Its members, many of whom have been skeptical of new taxes, are likely to face intense lobbying from business groups opposing it.

The Chamber of Commerce will be one, but others will join. Gabriel Neuman, policy counsel for the Greater Seattle Business Association, feared it would be another burden on the beleaguered restaurant industry. He pointed to the jump in minimum wage that kicked in this year, a lagging delivery service economy and new taxes from the state as collectively making it harder to maintain mid-size hospitality businesses.

Although he appreciates the exemptions for smaller businesses, he said the proposal will land not just on the ultrarich.

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“Two million dollars sounds like a lot, but when you’re a local restaurant or hospitality business, it’s really not,” he said.

The proposal also comes months before a local election. Harrell has worked to peel off enough progressive backing to blunt a challenge from his left, which is coming from Katie Wilson.

He’s picked up endorsements from labor, as well as U.S. Rep. Pramila Jayapal and King County Councilmember Teresa Mosqueda, both stalwarts among Seattle’s progressive base.

Wilson backs the idea and called it “smart,” but cast it as opportunistic on Harrell’s part, instead crediting Rinck with driving the effort.

“Harrell’s in a corner and he’s doing what he has to do and he’s trying to make it look like he’s taking the lead,” Wilson said. “He’s not.”

The proposed tax is legally required to go to voters and would be the first time since the late 1980s since Seattle’s business and occupation tax is on the ballot. It has a four-year sunset period, but future councils could choose to renew it — or not — without voter approval.

Burgess acknowledged concerns about the broader Seattle economy, but argued it’s a measured approach.

“We’re sensitive to that issue, but we have to ask, what are our options?” he said.