The city of Seattle’s short-lived head tax may be dead, but for some state officials a cloud of uncertainty still hangs over the long-term health of Washington’s economic climate – even as the latest state report shows strong regional growth in both jobs and revenue.
Similar worries have been raised by state economists regarding recently announced tariffs by President Trump on Chinese products and the effect it will have on Washington, a major trading partner with China and the most trade-dependent state in the nation.
After a month of backlash from both Seattle residents and the local business community, the Seattle City Council rescinded the $275-per employee head tax that it had unanimously adopted. However, some state officials remain concerned about its lingering impact on attracting new businesses.
Those apprehensions were expressed by State Department of Commerce Director Brian Bonlender in an interview with TVW following the tax’s repeal. “The head tax proposal has created a perception problem…that we often have to discuss as to how that may or may not be related to a company that we’re recruiting to the region. I do believe that (the head tax) creates a perception issue,” and “that problem is beyond the borders of the city of Seattle.”
Still, that perception has yet to be reflected in Washington state’s potential business deal with Boeing to build its 797 jet, an effort headed by the Choose Washington New Middle-of-the-Market Airplane (NMA) Council. An Aerospace Competitive Economics Study released earlier this month found Washington was the most competitive state, citing among other things the state’s lack of an income tax and its high number of research and development companies.
The long-term ramifications of the Seattle head tax were once again a point of interest among panel members at the state Economic and Revenue Forecast Council’s (ERFC) June 19 meeting. When the issue was raised by State Treasurer Duane Davidson, ERFC Executive Director Steve Lerch said that if businesses moved from Seattle to other parts of the Puget Sound area, “it wouldn’t have much an impact on our forecast. It seems to me that at least for a lot of the existing firms, (it’s) much less expensive to gradually move to Bellevue. We can think of some firms…that have offices in both Seattle and Bellevue, already.”
However, he added that the media attention Washington has received as a result of the tax “probably is not altogether positive.”
“I think probably the bigger question is to what extent does this impact firms that were thinking about moving here,” he added. “I think that’s really hard to know. The fact that it was repealed has got to offset some of those concerns, but it’s certainly got a lot of press. This is something that the national business community is aware of.”
Yet, the most recent ERFC report shows a strong Washington economy that continues to outperform the nation, with a 4.7 percent statewide unemployment rate that has been unmatched since June 2011. Seattle home prices have also increased by an astounding 86 percent since December 2011.
Along with that prosperity comes more money into state coffers, with 16 percent growth of the Near General Fund State revenue from the previous biennium, and an estimated nine percent increase between the current biennium and 2019-21.
However, Lerch cautioned that the economic forecast doesn’t account for recently-announced U.S. tariffs on Chinese products such as steel and aluminum because the news came out the same day the report was released. Critics have warned that the tariffs could instigate a trade war between the U.S. and China, in which Washington would be among the biggest casualties. Indicating strong trade ties between Washington and China is the fact that the state experienced strong export growth with that country last year, despite overall negative export growth.
“The impact of these tariffs might push that (growth with China) the other way,” Lerch said. “By September or November, we’ll have a better sense of the impacts that’s going to have.”
Any drop in economic growth could also create problems of the state legislature as it looks to fund the 2019-21 biennial budget. Even with the increased revenue expected, state Office of Financial Management Director David Schumacher warned in a recent letter to state agency directors that they “should be prepared to manage with minimal or no funding increases. Forecasted revenue growth is not likely to meet current demands on the state’s resources, including mandatory caseload and cost growth, maintenance of the K-12 and health care systems, and spending increases for critical mental health programs, employee compensation and other services.”
In a recent blog post, Washington Policy Center Government Reform Director Jason Mercier wrote “Hopefully cooler heads will prevail on the trade front to avoid sabotaging our state’s strong economy.”