Seattle’s high-tech aspirations may run afoul of their high-tax aspirations. The city council wants to impose an employment tax on the city’s biggest businesses in order to raise $75 million to solve their homeless problem. That came as news to Amazon, which had previously committed to adding a skyscraper to the city, along with 7,000 new office jobs to an already massive employment profile in the city. Amazon called a halt to those plans and told the Seattle city council exactly why:
Amazon.com Inc said it has halted planning for a new office building in Seattle and might sub-lease rather than occupy another future tower downtown, pending a city council vote on a proposed tax on top businesses.
Amazon’s decision puts a question mark on more than 7,000 new jobs at those buildings that council members might be loathe to cost the city. Construction work and other businesses that would have catered to the world’s largest online retailer could be at risk too.
“Pending the outcome of the head tax vote by City Council, Amazon has paused all construction planning on our Block 18 project in downtown Seattle and is evaluating options to sub-lease all space in our recently leased Rainer Square building,” Amazon’s Vice President Drew Herdener said in a statement.
That didn’t sit well at all with some of the council members, who apparently expected Amazon to ignore business costs in choosing expansion locations. One called it “blackmail”:
Mayor Jenny Durkan vowed to seek common ground, while council members pushing the measure gave no indication they intend to back down. Councilmember Kshama Sawant accused Amazon of attempting “blackmail.”
“I’m deeply concerned about the impact this could have on a whole range of issues,” Durkan said in an interview about Amazon’s play, declining to say whether the company gave her advance notice. “Everyone should be.”
Another lamented that Amazon didn’t want to pony up and be a team player:
“It’s obviously a little disconcerting when a major business says, ‘We’re rethinking our strategy here,’” Councilmember Mike O’Brien, a sponsor of the tax measure, said Wednesday before a meeting on the proposal at City Hall.
“If Amazon generally wants to engage about how they can be part of the solution, we welcome that conversation. But we need companies that are profitable and making billions of dollars every year to help with the folks that are being forced out of housing and ending up on the street.”
Well, just how much will it cost Amazon to be a team player? According to the local Chamber of Commerce, the extra tax will cost Amazon over $20 million per year, thanks to their head count of 45,000 employees in the city. That’s only through 2020, though, because after that the city will impose a 0.7% payroll tax on companies grossing $20 million or more annually in the city. That new rate is expected to drive Amazon’s costs even higher.
That could well prompt Amazon to rethink even its current presence in the city, let alone any additions. As the Seattle Times notes, its presence in the city occupies ten million square feet of office space, which comes to 10% of the city’s capacity. They own four buildings and are developing the two others that are being “paused” as the issue unfolds, but they lease or plan to occupy much more space in the city. It wouldn’t be difficult for Amazon to relocate a large number of existing jobs to less costly locations, either in the area or somewhere else entirely. That kind of exodus could completely wreck the city’s economy, which the city council seems determined to do anyway with their track record of very bad business mandates. Remember this?
When Seattle officials voted three years ago to incrementally boost the city’s minimum wage up to $15 an hour, they’d hoped to improve the lives of low-income workers. Yet according to a major new study that could force economists to reassess past research on the issue, the hike has had the opposite effect.
The city is gradually increasing the hourly minimum to $15 over several years. Already, though, some employers have not been able to afford the increased minimums. They’ve cut their payrolls, putting off new hiring, reducing hours or letting their workers go, the study found.
The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one, according to the study, conducted by a group of economists at the University of Washington who were commissioned by the city. The study, published as a working paper Monday by the National Bureau of Economic Research, has not yet been peer reviewed.
On the whole, the study estimates, the average low-wage worker in the city lost $125 a month because of the hike in the minimum.
It’s been easy to slam Amazon as it has pitted cities against each other to get tax breaks based on the size of their business. They’ve hardly been innocent of the kind of crony capitalism that undermines competition and unfairly penalizes start-ups. This, however, is a different kettle of fish. Amazon has invested heavily in Seattle even with its nutty politics on the basis of cost-to-benefit ratio decisions made previously to this new proposal. Seattle’s city council is about to dramatically change those calculations in a greedy bid to grab Amazon’s money — and in doing so is making it very attractive for Amazon to write off those investments. They’d be insane not to react to the changing incentives, even more insane than the city council has been in proposing them.
If Seattle wants to cut its own economic throat, then Amazon is under no obligation to offer up its own neck as well. Maybe Seattle residents should ask themselves why that $15 minimum didn’t have much impact on homelessness, and whether massive amounts of empty office space might make that situation even worse as other businesses follow Amazon out of Seattle’s jurisdiction.