Seattle Needs a Cure for Its Tax Fever
(Bloomberg Opinion) -- When Amazon announced its search for a second North American headquarters last year, it listed a “stable and consistent business climate” as a top priority. By that standard, its hometown -- HQ1 -- may be failing the test.
The Seattle City Council recently approved the largest “head tax” in the country -- $275 per employee per year that Amazon, Starbucks and more than 500 other big companies will have to pay.
What’s driving all of this is the extraordinary disruption of a city that added 114,000 new people in the past seven years and is experiencing the nation’s fastest-rising home prices, putting home ownership out of reach for more and more people. The head-tax revenue is supposed to help Seattle deal with its large homeless population.
The blowback is sizable. A coalition of businesses led by Amazon, Starbucks, grocery stores and others is gathering signatures for a November referendum to revoke the tax. They will get their signatures and, likely, their recall.
Other nearby communities, like Pierce County to the south, are mocking Seattle by offering a $275-per-employee incentive to companies that move there. Amazon recently transferred jobs on a 130-person delivery support team from Seattle to Arizona, a decision supposedly unrelated to the head tax vote.
A Washington state lawmaker wants to revoke Seattle’s ability to pass taxes like the one aimed at big companies. And business writers eager for a new narrative of this often lionized city piled on, wondering, “Is Seattle Doomed?”
No, of course it isn’t, at least not in the short term. The economy will survive and thrive. Several other tech companies have offices here. But the city has sent a lousy message, with longer-term consequences. Note to other tech cities pondering a similar idea, and there are a few in California: Seattle’s head tax has become the headache tax.
After the heated battle, Amazon, usually low key or silent on local politics, issued a statement lambasting “the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.”
No one fared well, not the City Council, which is too anti-business for mainstream Seattle; not the mayor, who should have vetoed the plan, and not Amazon, which has been reluctant or late to engage deeply in the community’s biggest problems.
Though the council opted for the lower head tax -- Amazon and Mayor Jenny Durkan influenced that part of the debate at least -- the vote was unanimous.
“Some subjects of taxation are more elastic or responsive than others,’’ said Jared Walczak, senior policy analyst at the business-friendly Tax Foundation. “The concern here is that some businesses can easily remove jobs to another jurisdiction or, more simply, expand elsewhere.’’
Walczak considers Seattle’s business climate unpredictable. He rattled off a slew of different tax proposals touted by mayoral candidates and the council during the past year: a foreign buyers’ investment properties tax, (not approved), a short-term rental tax (approved), a city income tax (approved, then struck down in court), an earlier head tax (held until approved in May), a sweetened-beverage tax (approved), a luxury real estate tax (not approved).
A little tax happy, to say the least.
Tech cities on the West Coast with desirable climates and surroundings can get away with these taxes. They have problems based on booming economies -- too many people (and homeless), too much growth and congestion, even too many high-paying jobs,
“We don’t want to force companies out of town, but it wouldn’t hurt us if growth in employment slowed,’’ said Mayor Lenny Siegel of Mountain View, California. “This is like that Yogi Berra saying, ‘Nobody goes there anymore, it is too crowded.’ I am more worried about businesses having a problem hiring because of the shortage of housing and transportation.’’
Mountain View, home of Google, and Cupertino, home of Apple, are considering head taxes similar to Seattle’s. The proceeds likely would go toward transportation improvements.
“We are already spending millions of dollars and so people lack confidence that these dollars are going to play a meaningful, incremental role,” said state Senator Reuven Carlyle, a Seattle Democrat who opposed the tax. “It comes at a big cost without buying us a big impact.”
The contrast between Seattle and the potential sites for Amazon’s second headquarters is dramatic when you consider the sizable subsidies and other benefits the 20 finalists are offering the company.
When Amazon makes its HQ2 announcement, which is expected soon, some psychological pressure on Seattle will ease. Another place will become the “it” city, with the prospect of thousands of new high-paying jobs stimulating the local economy.
Maybe then, Seattle and its smug City Council will pause, reflect and devise a better strategy for relating to the businesses that fill its tax coffers and fuel its prosperity.
©2018 Bloomberg L.P.