Will Seattle job tax affect state economy?

Will Seattle job tax affect state economy?
A recent meeting of the state Economic and Revenue Forecast Council examined the difficulties incorporating Seattle’s new job tax into its forecast outlook. One of the reasons is the city’s disproportionate share of the state’s economic growth. Photo: Puget Sound Regional Council

If Seattle’s recently approved job tax survives a voter initiative backed by the local business community and possible legislative action, its direct impact on city and state economic growth may be impossible to measure. It’s a possibility considered by state officials and rating agencies within the context of a thriving local and state economy that could mask any consequences.

It’s also part of the reason why two rating agencies say they’re not changing Seattle’s credit for now.

Tasked with forecasting Washington’s economic outlook as part of the state’s four-year budget planning is the state Economic and Revenue Forecast Council (ERFC), composed of legislators, the Office of Financial Management and the state treasurer. The new job tax became a topic of discussion at the council’s May 29 meeting. The latest economic outlook describes a vibrant state economy, but doesn’t account for Seattle’s latest tax ordinance.

After inquiring about it, State Treasurer Duane Davidson added: “I know it’s rather difficult to do, because we don’t know what the impact is.”

That view was shared by ERFC Executive Director Steve Lerch. Although the job tax “would have been certainly worth calling out as a forecast risk,” he also said that “impacts from that would not be things that would happen overnight, and they would be gradual. The Seattle economy is so strong that it might be really hard to disentangle….”

A similar view was articulated in a May 18 report by rating agency Fitch explaining why Seattle’s head tax would not change the city’s AAA or its “stable outlook.” A May 23 report by Moody’s described the tax as a “credit positive.”

However, the Fitch report cautions that “the city’s revenue framework and overall credit quality could be affected longer term if the tax increase leads corporations to decide to move out of or not to locate in the city. However, any impact would be felt marginally over many years and would thus be difficult to distinguish from other rationales for corporate decisions.”

But for now, the report observes. “The city’s proportion of working age population is 9% higher than the county and 17% higher than the nation, and the proportion with a bachelor or advanced degree is 23% higher than the county and twice as high as the nation. The city is also the cultural center of a large metropolitan region with many public amenities including sports, entertainment, transit, and nearby airport, and seaport facilities. The unemployment rate in the city has been below 4% since 2015 and trends below the county rate and the national rate.”

That economic reality was reflected also in ERFC’s latest outlook. It found that Washington’s population and per capita personal income has grown faster than the national average since 2010. Also, while percentage-wise other metro areas in Washington are growing faster than Seattle in terms of population and personal income metrics, it’s getting the bulk of new jobs. Sixty percent of recent nonfarm employment growth was in that region alone.

In comparison, Tacoma came in second with just under 10 percent of new employment growth.

The flourishing regional economy has propelled Washington to the top in terms of GDP growth for six consecutive years. Last year, the state had a 4.4 percent increase in real GDP, the highest of any state, with Colorado second at 3.6 percent. The State Department of Commerce’s Bureau of Economic Analysis attributes Washington’s GDP growth primarily to new retail trade and information service jobs. Indeed, ERFC’s May 15 Economic and Revenue update concluded that the difference between Washington’s GDP growth and the national average was “almost entirely due” to job growth in those two sectors. ERFC also found that Seattle metro got the lion’s share of the new retail trade jobs compared to the rest of the state.

However, the job tax could complicate the situation if, instead of more growth as predicted, a recession occurred. A Wall Street Journal survey of forecasters found that 60 percent of them believe that will happen by 2020 in response to rising Federal Reserve interest rates.

Yet, Lerch says few economists predicted the 2007 recession, and in general recessions are too difficult to anticipate. It’s why they’re not included in ERFC baseline forecasts.

“Economists do not do a great job of predicting when recessions start or what will cause them,” he said.

But as the Fitch report warns, what may also make it impossible to measure lost employment due to Seattle’s new tax are the jobs that simply aren’t created there at all.

At Washington Policy Center’s May 23 Solutions Summit in Spokane, Madrona Venture Group Managing Director Matt McIlwain said that’s the message the tax sends to employers. “If there’s ever a discouragement for creating economic growth and resources, it’s ‘don’t hire more people into your companies.’”


  1. Ah yes, the vibrant economy of Seattle. It’s almost comical to consider that it is still the script, but you know what they say about ducks in water. Unmentioned in the glowing reports about the number of educated people Seattle has or any of the other glowing sentiments is 1) one of the leading employer is looking elsewhere, another moved to Chicago and SC years ago; 2) one of the largest homeless population, shocking when you consider that the other cities are so much larger than Seattle; 3) one of the nation’s widest income disparities, and the poor only continue to get poorer, mostly because of 4) a runaway socialist Seattle government; and 5) a road and housing infrastructure that does not support current residents.
    As Drugs, Inc so correctly depicted you have open drug deals occurring throughout the city 24 hours a day. Homeless tents line the city streets. Doesn’t matter if the city has museums, you can’t drive to them and if you walk, well enjoy the smell of feces and urine; just watch where you step – needles are everywhere.


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