The Seattle city council’s vote on the so-called “head tax” will be taking place this afternoon (about the time this post goes up). The head tax would impose a fee of $500 per employee per year on every company earning over $20 million. As of Friday, four members of the city council opposed the tax while five members supported it. However, if the final vote Monday afternoon is 5-4, that would mean the city’s mayor would be able to veto the tax. It takes 6 votes on the city council to override a mayoral veto.
Given the potential for a veto, there has been some last minute negotiating. King 5 in Seattle reports the mayor’s office and the city council may have reached an agreement on a smaller version of the head tax:
Councilmember Lorena Gonzalez says she has negotiated with Mayor Jenny Durkan and her staff on a new amendment. Gonzalez says the new terms with be $275 a head to raise roughly $50 million a year, with a sunset clause January 1, 2024…
It came after a tense Friday committee vote where three amendments were rejected, and the council eventually approved a proposal to tax businesses at $500 a head to raise $75 million dollars a year with no sunset.
That vote was only 5-4, and Durkan has threatened a veto under those terms.
As I described Sunday, the tax is being imposed in an attempt to deal with Seattle’s homelessness problem. One city consultant suggested the cost to deal with the problem would be $400 million, so $50 million is not going to make much of a dent in the problem.
However, while the tax won’t be enough to solve the problem, it may be enough to convince Amazon and other companies to look elsewhere for places to scale up their operations. Amazon has already said it will halt planning on a skyscraper it is building downtown and has suggested it could lease space in another building rather than staff it with Amazon employees. The Seattle Times published a story last night stating that Amazon has been looking at expanding beyond Seattle even before the head tax issue:
Most of the attention paid to Amazon’s half-million-strong global workforce centers on the company’s mammoth headquarters, its dozens of warehouses, the ongoing search for a second headquarters city, or, recently, its threat to stem job growth in Seattle.
But amid all that hiring and planned hiring, the retail giant has also built a network of research and development hubs across North America that account for about a fourth of the company’s white-collar workforce.
But Amazon isn’t alone in opposing this. Over 100 startups and CEO’s sent a letter to the mayor last week warning that the head tax was sending the wrong message. From Geekwire:
“Instead of a strategic plan to address growth, the Council has proposed to tax only 3% of our city’s largest business, charging them a flat rate per worker they hire, making businesses pay a price for creating jobs,” the letter says. “This is like telling a classroom that the students who do the most homework will be singled out for detention.”…
“We oppose this approach, because of the message it sends to every business: if you are investing in growth, if you create too many jobs in Seattle, you will be punished,” the letter reads. “Sending this message to entrepreneurs, investors, and job creators will cause far greater damage to Seattle’s growth prospects than the direct impact on the businesses being taxed. Not all of the undersigned are directly impacted by this tax, yet we all agree it is a bad idea.”
The reduction of the tax from $500 to $375 may represent an improvement but it would still be the highest head tax imposed by any city in the nation. Q13 Fox reported last week that the $500 per head proposal was ten times the amount imposed in other large cities:
Denver has a head tax called an “Occupational Privilege Tax” of about $4 per employee per month. Seattle’s proposed tax would be closer to $45 per employee per month.
Although, Denver’s tax does not exclude smaller businesses. Seattle’s does, making any business grossing less than $20 million per year exempt.
Chicago used to have a “head tax” of about $4 per employee per month, but in 2014, at the urging of Mayor Rahm Emanuel, the city eliminated the tax.
While campaigning against the tax in 2011, Emanuel told the Chicago Tribune the “head tax” was a job killer, adding that “eliminating the head tax is the right thing to do for businesses big and small, and it’s the right thing to do to secure Chicago’s future.”
Here’s a graph showing the $500 per year proposal against what other cities have done:
If you drop the annual tax to $375 that puts the monthly tax at about $31 per head. That’s still almost eight times as large as the head taxes in Chicago or Denver. Why would any company want to pay that extra tax when it already has other sites located around the country? And, it should be noted, Amazon is already putting millions into fighting homelessness in the Seattle area, so it’s not as if you can claim the city’s largest employer is doing nothing about this issue. From Geekwire:
Through fees associated with its real estate development in Seattle, the company has contributed a cumulative total of $40 million to the city’s affordable housing fund. Separately, the company has committed more than $40 million to two groups: the Mary’s Place shelters for homeless families, including space in company buildings; and the FareStart non-profit organization for homeless and disadvantaged men, women, and kids, including space and equipment for FareStart restaurants.
This tax seems like a very bad idea but given the socialist bent of Seattle’s city council, I won’t be at all surprised if some version of it passes. I’ll update this post with the results of the city council vote later this afternoon.
Update: The new lower head tax passed unanimously. From CNN:
The Seattle City Council passed it unanimously in a 9-0 vote.
The newly passed ordinance, which takes effect in January 2019, will impose a “head tax” on the city’s highest grossing businesses. The tax will amount to $275 a year per full-time employee in Seattle. It would raise an estimated $44.7 million a year and expire after five years, according to the Council.
Recode reports that Amazon is responding by saying the city has a “spending efficiency problem.”
In a statement, Amazon spokesman Drew Herdener said that Seattle city revenue growth over the last seven years “far outpaces the Seattle population increase over the same time period. The city does not have a revenue problem — it has a spending efficiency problem.”
“We are disappointed by today’s City Council decision to introduce a tax on jobs,” the statement also said. “While we have resumed construction planning for Block 18, we remain very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.”
Despite the harsh words it sounds as if Amazon is not going to stop construction. Time will tell if they do anything in response to this new tax. We’ll also need to see if any other companies decide to back away from Seattle because of this.