Seattle Should Stop Taxing Heads, and Use Them
Sometimes an idea comes along that’s so bad, even the politicians have to admit they were wrong. This rare circumstance came to pass [this week] in Seattle, where the City Council voted, 7-2, to repeal a law it had passed unanimously just a few weeks before. The controversial measure, which lasted all of 29 days on the books, would have imposed a “head tax” of $275 per worker on every company in the city with revenues over $20 million per year, with the intention of raising revenue to combat the city’s homelessness crisis.
The truth is bad policy ideas never really go away – they just retreat to co-op coffee shops and college classrooms. Some version of the head tax has either been enacted (2006-2009) or under consideration in Seattle for over a decade, and a new incarnation is already in the works. Proponents are hereby put on notice: the head tax amounts to economic decapitation.
Punishing companies for employing people creates a positive disincentive to hiring. It encourages employers to resort to countermeasures like layoffs, automation, trimming wages and raising prices—all of which drives up the cost of living for regular folks.
Worse still, it would put the city at a serious disadvantage in the national competition for investment and job creation. Tens of billions of dollars of potential wages and consumer spending are in play at this very moment, as companies andindividuals look to relocate from high-tax states to others with better managed, more responsible administrations.
Located in a state without income tax, with an unparalleled natural setting and cultural cachet to spare, Seattle is well positioned to pick up some of the billions of dollars in investment currently fleeing overtaxed California – provided it doesn’t scare off companies with even more destructive levies. And while the rivalry may be less visible than the Mariners versus Rangers, it’s in direct competition with cities across the American west for income and investment.
Take Phoenix, which enjoyed the highest sustained growth in average income of any major American city over the last three decades, thanks to low taxes and its location neighboring California: right now the city is attracting new income at the incredible rate of $1,539 per minute, beating Seattle by around $1,200 per minute. Las Vegas is another standout, with hundreds of companies relocating thanks to Nevada’s zero corporate tax rate, not to mention scores of promising tech startups. In addition to helping diversify the Las Vegas economy away from the lucrative but volatile categories of gambling and hospitality, the influx is increasing city’s income at the rate of $1,048 per minute, or three times Seattle’s growth.
There are many more examples across America. From 1995 to 2010 over $2 trillion of personal and corporate wealth moved between states in one of the greatest economic realignments in U.S. history, drawn by lower taxes and more amenable regulatory regimes. And the process is only getting started, thanks to recent tax reforms. Seattle should make sure it’s on the right side of history – by looking to the future.
