Seattle Quietly Continues to Contemplate Taxing Employment

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As a quote from Spongebob goes: “How many times do we have to teach you this lesson, old man!”

The last time the Seattle City Council attempted to push through an unpopular “head tax” — essentially a tax on every job — on large employers in the city, it backfired spectacularly, with the City Council rescinding the tax in the face of a massive referendum-driven repeal effort. Undaunted by this clear public rebuke, Councilmember Kshama Sawant, a member of the Trotskyist “Socialist Alternative” Party, is pushing to pass another version of the tax.

The initial head tax proposal, passed and then repealed in 2018, would have taxed large employers at a rate of $275 per employee, regardless of that employee’s salary. As a freshman year economics student could tell you, the effect of the tax would have been to discourage employment, particularly that of low-wage workers. If you tax something, you get less of it, and Seattle’s proposal specifically taxed jobs. And when an employee making minimum wage incurs the same tax liability as a CEO making minimum wage, whose job can you imagine would end up on the chopping block first?

Advocates of the head tax argued that the tax dollars would be used to fight homelessness. Of course, this line of thinking ignored the fact that layoffs and business flight from Seattle would simultaneously increase the scale of the city’s homelessness crisis and reduce the city’s resources. And after years of fruitless anti-homelessness spending, just 8 percent of the city’s residents reported that they had a “great deal of trust” in the city to spend the funds wisely.

Sawant’s new tax avoids some of the pitfalls of the original version, but manages to be blockheaded in entirely new ways. Namely, the new tax would be structured as 1.3 percent payroll tax, not a head tax, meaning that it would specifically target low-wage employment to a lesser extent than the original version. Payroll taxes are still regressive, but it’s difficult to structure a tax worse than a head tax.

But on the other hand, the new tax proposal is even more foolish than its predecessor. The tax is being proposed in the middle of the coronavirus pandemic, when Americans across the country are facing layoffs and furloughing already. While Sawant’s proposal calls for the tax to take effect in 2021 or 2022, some analysts are predicting that it will take years to return to pre-pandemic economic strength and any new tax burden will make that timeline even longer.

After all, should Seattle move forward with this proposal, it signals to already-wary Seattle businesses that the 2018 head tax was not an aberration. It sends a message to businesses that the city views businesses only as cash cows to be milked until they die, not partners in whatever policy initiatives the city sees as important. In the face of loud and clear messages like this, large businesses with the resources to up and leave — coincidentally, those that would be hit by the Seattle tax — would have plenty of justification for doing so.

And this time, the business tax is being put forward as a means of funding $500 monthly coronavirus relief payments to Seattle households. This underscores the utter bankruptcy of economic logic behind the proposal — $500 a month is certainly nice in a vacuum, but it will be little consolation to laid-off Seattleites whose former employers just left for Houston. A monthly payment is a poor substitute for a job.

The city’s newspaper, the Seattle Times, recently ran an editorial begging the city to end its tax “inanity.” The Times is right: should the city continue to humor its worst Councilmember and antagonize employers, it’s soon going to wish it had any large businesses left around to tax.

Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government. 

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