Seattle business leaders: tax scheme punishing to employment sector

Aerial shot of Seattle
Employers have come forward expressing disappointment with a new business tax plan put forward by Seattle elected officials. Photo: Senior Airman Taylor Curry

On Apr. 21, the Seattle City Council unveiled its proposed business tax plan to raise $75 million for additional  affordable housing options and addressing the city’s homeless population.

Business stakeholders say the change would harm employers’ bottom lines and lower the number of low-income employees they can hire, while proponents of the proposal argue the homeless problem requires additional funding and attention.

Under the plan, the 500 largest businesses would pay $0.26 per hour per employee working in Seattle in 2019 and 2020. Otherwise known as a “head tax”, this penalty is estimated to cost employers around $500 per year per fulltime worker. Small and medium-sized companies would be exempt, as well as nonprofits.

Starting in 2021, the tax would then be replaced by a business payroll tax which would take 0.7 percent from work done in Seattle by those larger businesses.

“We’ve seen an uptick in our neighbors experiencing homelessness and housing insecurity and the impact that it has on our entire community,” wrote Councilmember Teresa Mosqueda, Pos. 8. “This progressive revenue stream balances the needs of our small business community, while ensuring we have the funding we need to provide critical housing and health services.”

The Council will hold meetings on the proposal through May 9 before a final vote scheduled for May 14.

Some Seattle business owners said they feel the proposed taxes are not the best option for solving the homelessness crisis because they make it harder for companies to continue operating and decrease the amount of employees they can pay.

“It should be renamed the ‘Relocate Jobs Outside of Seattle’ ordinance,” State. Sen. Steve O’Ban (R-28) told Lens. “It’s a job killer and it sends all the wrong messages to existing employers and those who might want to relocate to Seattle.”

Seattle had a head count tax in 2006, but O’Ban added that it was repealed because the mayor understood it hurt the creation of new jobs.

“I don’t think the fact that it applies to the top 500 employers should give any hope to the smaller ones. A lot of the smaller employers have businesses that rely on the financial success of the larger ones.

“This will have a negative effect throughout the Seattle economy, not just the top 500 that will have to be punished for being successful at hiring employees.”

O’Ban added the proposal seems to misunderstand the economic effect of jobs, where there is a multiplier effect when a business owner employs someone, especially well paid, living-wage jobs. Jobs in restaurants, real estate, car-buying or a number of other sectors fuel other parts of the economy.

“What you are going to do here is reduce overall economic activity. All the taxes from the sales tax on that are raised from that multiplying effect of jobs.”

He added that it is absurd to blame businesses for homelessness when employers already help pay for government services and homelessness programs.

“If I am a CEO thinking about the income tax they want, and now I have this head tax…what is the next shoe that is going to drop?

“At some point you think if you are going to expand, you need to expand somewhere else and start laying the groundwork to move out if don’t get better leadership from the city.”

Paul Guppy, Vice President for Research at the Washington Policy Center (WPC), told Lens: “It’s no big shocker that Seattle is coming up with a new tax to impose on people; this is part of an ongoing pattern.”

He added the council should instead put more effective use of King County and city money toward homeless programs.

“$200 million a year on homeless and housing programs and homelessness has gotten worse. I don’t think it’s a practical matter adding more money to a program that is not working.”

Guppy suggested the council look internally to find out what it is doing wrong instead of adding additional taxes.

“They are trying to structure it so it looks like it taxes big corporations, but when you tax jobs you are hurting workers.

“I’m sure the proponents think big corporations will take on the tax, but business decisions are made on the margin. This tax is coming on top of the high sales tax, the increased minimum wage and a huge increase in property taxes which Amazon and others are going to have to pay.”

Guppy added that the flat tax nature of the head tax incentivizes employers to eliminate low-paying jobs because the tax is taken at a higher portion of what they are paying someone for low-income.

On Apr. 23 the Seattle City Council’s Finance and Neighborhoods Committee held a public comment period on the proposal.

Pete Kurtz-Glovas, Program Manager for Compass Housing Alliance, told the council that his social service colleagues have nowhere to send homeless people for housing.

“We just need something, some kind of tax to get these people indoors…people are dying homeless in the streets and we need to do something about it now.”

However, Jon Scholes, President and CEO of the Downtown Seattle Association, testified the proposal would harm the businesses it claims to protect.

“The proposal exempts small businesses from paying the tax, but it will not exempt them from feeling the impacts of this tax.”

He added that the city has seen incredible growth from large employers, which has also been felt among the small business owners. It would be unlikely for the tax to hurt one but not the other.

“A job tax like this really falls heavy on the hospitality community,” Richard Hill, General Manager of the W Seattle Hotel, told the council. “We have large teams and really tight profit margins…a tax like this feels like it is regressive; it’s a total disincentive to add employees.”

Hill estimated the tax will add a burden of between $75,000 and $100,000, depending how busy the business is. He recommended the council look into the accountability of the spending done for the homeless problem.

“Please reconsider this head tax, please don’t penalize businesses that provide jobs,” he added.

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