Today, Seattle Councilmember Alexis Mercedes Rinck announced a new Business and Occupation (B&O) tax levy, called the Seattle Shield Initiative, which she hopes to put before voters this November. With key support for the measure from Mayor Bruce Harrell, the initiative is part of the City’s proposal to deal with its 2026 budget deficit — estimated to be $150 million, with a strong chance of growing larger in the upcoming months due to negative economic trends.

The proposed restructure of the B&O tax would result in a more progressive tax due to a higher exemption. Seattle’s current B&O tax has an exemption of $100,000, meaning businesses that don’t earn more than $100,000 in annual gross receipts don’t owe any tax. Rinck is proposing raising this exemption to $2 million, which would create new tax exemptions for many small businesses.

Under the Shield Initiative, 76% of small businesses in Seattle won’t pay any B&O tax, and 90% of small businesses will pay fewer taxes in 2026 than they pay right now. Meanwhile, about 2,300 businesses will pay higher B&O taxes.

The restructured B&O tax is expected to generate an additional $90 million per year by increasing the tax rates for those businesses still eligible to pay the tax by around 50%. This rate hike is not dissimilar to the change in the state-level B&O tax made by the Washington State Legislature earlier this year.

A ballot measure to increase the B&O tax is not unprecedented in Seattle. In 1989, Seattle’s city council sent a B&O tax increase to the voters in order to fund additional public safety investments.

“Today, we are facing a defining moment for Seattle,” Rinck said. “While federal cuts threaten the services our working families and most vulnerable neighbors depend on, we have a choice. We can either stand by and watch essential programs disappear, or we can give Seattle voters the power to protect what matters most.”

The new revenue will be earmarked for three priority buckets of funding: housing, which includes housing stability for low-income tenants and funds to stabilize affordable housing providers; the Human Services Department, with prioritization for homelessness, food assistance, and services for survivors of gender-based violence; and small business support, including funding for vulnerable workers’ rights.

The priority buckets reflect concerns about potential federal cuts on the horizon, including to the SNAP food assistance program and the United States Department of Housing and Urban Development (HUD) emergency housing vouchers program. Funding for workers’ rights could potentially assist immigrant and refugee workers who are at increased risk of abuse from employers and detainment by the federal Immigration and Customs Enforcement (ICE) agency.

“Here’s what I want people to understand,” Rinck said. “The programs we’re protecting with this initiative, they work and they change lives, and we need them now. The $90 million generated annually will protect services that keep families fed, housed and safe. As the Trump regime cuts federal funding for food banks, emergency shelter, and housing programs, local investment becomes the difference between maintaining these lifelines and watching them disappear.”

Should the levy pass, the city council will develop a detailed spending plan for the levy funds in early 2026 based on these buckets. This revenue strategy would avoid the troubles experienced around the JumpStart payroll tax, whose priority buckets can be changed by a vote of City Council. That flexibility has meant payroll tax revenue is often used to backfill budget holes and whatever General Fund expenses the mayor and council deem necessary instead of going to its spending plan priorities, which originally focused on affordable housing.

The additional funds from a B&O levy would start being collected immediately in 2026, meaning that for the first year, the additional revenue would be allocated in the 2026 adopted budget. The council is scheduled for a final vote on that budget on November 21.

Harrell touted the Seattle Shield Initiative as “a new proposal to support small businesses and raise progressive revenue to respond to Trump’s threats and the ideological bullying that we see.”

Shifting political lines?

Beyond offering the prospect of budgetary boost, the Seattle Shield Initiative also could be a lifeline for Mayor Harrell’s reelection chances. Recent polling has shown Harrell running neck and neck with leading challenger Katie Wilson, the long-time leader of the Transit Riders Union and several progressive coalitions.

Harrell’s support for a new tax hike on large companies has not earned him praise from the Seattle Metropolitan Chamber of Commerce, which came out hard against the proposal. However, it could help present a progressive face heading into an election fight with a challenge flanking him from the left. After winning election in 2021 as a business-friendly centrist, Harrell hasn’t worked with progressives much during his term, but partnering with Rinck could mark a new tactic.

Chamber president and CEO Rachel Smith criticized the proposal, which she called rushed, but it appears highly unlikely Wilson would earn support from big business after leading the Jumpstart payroll tax push.

“Raising the B&O on any employer right now is a bad idea – especially given the economic facts presented last week by the City of Seattle itself: regional employment has declined, Seattle office vacancy is one of the highest in the U.S., consumer spending has weakened, there are fewer international visitors expected, and economic uncertainty looms from tariffs,” Smith said in a statement. “And this proposal comes just months after the legislature passed the largest tax increases in state history.”

On the other hand, Wilson hit Harrell for his late arrival to the progressive revenue discussion, and she painted him as dragging his feet and then trying to take credit for Rinck’s initiative.

“We’ve known about the City’s structural budget shortfall since 2022, and we’ve had almost eight months to contemplate the additional threat of federal cuts,” Wilson said. “In the absence of leadership from Mayor Harrell, Seattle is lucky that Councilmember Rinck has stepped up to propose new progressive revenue to help sustain vital services that our residents depend on.”

In addition to playing a key role in passing the JumpStart payroll tax in 2020, Wilson later served on the Revenue Stabilization Workgroup, which listed restructuring the B&O tax among its possibilities of new progressive revenue for Seattle. Those revenue proposals gathered dust for the last two years.

Katie WIlson speaks at a pre-pandemic Transit Riders Union rally. (Credit: Nathantain, Flickr)

“It’s clear that Harrell is terrified he won’t win re-election, and he suddenly feels the need to show progressive leadership by backing this proposal from Councilmember Rinck,” said Wilson. “It’s disappointing that it takes the threat of being unseated for our mayor to do the right thing. We need a mayor who will responsibly manage the city budget and lead on progressive revenue every year they are in office, not just in an election year.”

Senior Deputy Mayor Tim Burgess all but admitted the Harrell Administration had been kicking the can down the road, telling the Seattle Times they had “cobbled together” budget patches over the previous budgets without raising taxes, but ran out of wiggle room.

“We’re sensitive to that issue [of business impacts], but we have to ask, what are our options?” Burgess told the Seattle Times.

Budget storms ahead

At April’s revenue forecast meeting, the Office of Economic and Revenue Forecast Council director Jan Duras informed the council that total revenue projections for the upcoming 2025-2026 biennium had been lowered by $241 million.

Earlier in June, interim director of the City Budget Office Dan Eder told the council that in spite of several actions taken by Harrell – including freezing non-essential travel and training, new program spending, and new contracts, as well as extending the hiring freeze – the projected budget shortfall had grown to $150 million through the end of 2026.

Harrell has requested that City departments plan for a 5% budget underspend for 2025. He’s also asked departments to identify cuts for spending supported by both the General Fund and the JumpStart tax, including an 8% reduction for most departments and a 2% reduction for some departments related to homelessness and public safety, as well as certain very small departments.

Two revenue forecasts, one in August and one in October, remain before the council finalizes the 2026 budget.

Between President Donald Trump’s on-again, off-again tariffs, as well as his One Big Beautiful Bill that could cut large amounts of federal spending and immigration policies that are already leading to a shortage of workers in some sectors, economic uncertainty is high, weakening the City’s confidence in the news those forecasts might hold.

What is a $150 million deficit now could easily expand by the end of the year, making the council’s job of closing the budget gap even more difficult. The Washington state revenue forecast released on June 24 showed an additional $720 million deficit over the next four years compared to the estimate upon which the state legislature passed their budget only a few short months ago.

The Seattle Shield Initiative will only collect an additional $90 million per year, which doesn’t address the entirety of the 2026 deficit, even if it doesn’t grow any larger.

The 2026 budget Harrell is proposing in September will assume voters approve the Seattle Shield Initiative.

“This is a smart, sensible progressive proposal from Councilmember Rinck and the Mayor to raise critical revenue from our region’s biggest businesses while lowering costs for our small businesses,” said Rian Watt, executive director of the Economic Opportunity Institute (and board vice president at The Urbanist).

Other revenue possibilities

With the Shield Initiative falling short of covering the entire budget deficit, the Harrell Administration is eyeing two other tax measures to allow for new investments.

Earlier this week, Harrell signed legislation that places the Families, Education, Preschool, and Promise (FEPP) levy on Seattle voters’ ballots in November. The FEPP levy will cover six years and make a record $1.3 billion investment in Seattle’s youth.

As part of this large increase (the last FEPP levy invested $619 million over seven years), the FEPP levy provides investment in areas not formerly covered by the levy. The council raised the JumpStart tax by a small amount at the end of 2023 in order to provide $20 million for student mental health services. The new FEPP levy proposal seeks to transfer at least some of these youth mental health investments to the levy and away from JumpStart support by providing $188.5 million (approximately $30 million per year) for school health clinics and mental health services.

The FEPP levy also contains $46.6 million for school safety investments. Rinck proposed an amendment to the levy that would have prevented any levy funds from being used to contribute to the school-to-prison pipeline, but her fellow councilmembers, wanting the option of using levy dollars to pay the Seattle Police Department (SPD) for school emphasis officers (SEOs), didn’t support the proposal.

Councilmember Joy Hollingsworth proposed a change to Rinck’s amendment that struck the school-to-prison pipeline language, while retaining equity language, as well as stating that in implementing the levy, councilmembers would “ensure that safety investments prioritize addressing the root causes of violence and nonpunitive approaches, including but not limited to restorative practices.”

The revised amendment passed with four votes in favor, from Councilmembers Hollingsworth, Bob Kettle, Dan Strauss, and Rinck.

Seattle also has the option to institute a new 0.1% public safety sales and use tax established by the Washington state legislature during their last session. Proceeds from this tax must be used for “criminal justice purposes,” but this category is defined broadly, to include such uses as domestic violence services, public defense, diversion and reentry programs, programs reducing homelessness and improving behavioral health, and alternative crisis response.

Eder said this new tax is expected to generate $38 million in ongoing revenue. While it could legally be used to pay for expanding the Community Assisted Response and Engagement (CARE) alternative response program, increasing diversion programs, or shoring up the City’s homelessness and behavioral health programs, it is perhaps more likely that at least part of this money would go to SPD.

King County Executive Shannon Braddock has already transmitted the proposal to institute the public safety sales tax in King County. If Seattle were to institute the tax as well, Seattle goods and services would be subject to an increased 0.2% sales tax as a result. And given a proposal in King County to increase the sales tax another 0.1% to provide transportation services, residents of both Seattle and King County could see a noticeable jump in the sales tax they pay.

Sales tax is considered a regressive tax since it takes a higher percentage of income from low-income residents than higher-income residents.

“[The public safety tax] is being considered, is on the table for discussion, but because we understand the regressive nature of it, we are treading very carefully,” said Harrell.

Another option for more revenue would be to reconsider a city-wide capital gains tax. Such a tax would not be able to be implemented immediately, but it could help plug the budget gap starting in 2028.

Councilmember Cathy Moore proposed such a capital gains tax last fall, when it was estimated it would bring in anywhere between $16 million to $51 million per year. Moore’s capital gains tax legislation failed in committee in a 4-4 vote, with Councilmembers Hollingsworth, Tammy Morales, and Strauss also supporting it.

At the Wednesday press conference, the Mayor left the door open to the possibility of increasing the JumpStart payroll tax, whether in order to address potential federal cuts of Medicaid and Obamacare or to further bridge the city’s budget deficit.

“We’re not excluding anything or including anything,” Harrell said.

Harrell didn’t signal support for Moore’s capital gains tax proposal last year. How much support for other progressive revenue options that he’ll offer will become more clear when he announces his 2026 budget proposal at the end of September.

Should it make the November ballot, voters will get the opportunity to choose whether to support the Seattle Shield Initiative. February’s Prop 1A might give a clue as to how voters will lean. The measure, which enacted a new excess compensation tax to fund social housing, passed by a resounding 26 points.