An economic and policy consensus emerges: Seattle’s proposed jobs tax has no upside

Something rare is happening with respect to the proposed Seattle jobs tax: Observers from across the political spectrum appear to agree that the tax would have significant negative consequences for the city. And, given that the city is Seattle, the consequences would be felt throughout the state.

While the proposal has been called divisive – and the political divisions are undeniable – what’s struck us is the emergence of a consensus among policy experts. Charles Royer and Tim Burgess, former Seattle mayors (Burgess served briefly doing last year’s uncomfortable transitions) write in a Seattle Times op-ed,

A tax on jobs — which is exactly what this tax would be — is truly misguided. Here’s why.

First, academic research shows this type of tax kills jobs and lowers wages. Researchers at the University of Pennsylvania and the Federal Reserve Bank of New York estimated that Philadelphia’s version of this tax caused the loss of tens of thousands of jobs over a 30-year period. Another study from the Massachusetts Institute of Technology found that a similar tax obligation was shifted by employers entirely to employees through lower wages, something that’s very likely when the Seattle tax converts to a payroll tax in two years. The proposed Seattle jobs tax will harm workers.

Second, Seattle already has one of the highest city-based business taxes in the state of Washington. Passage of the “head tax” would impose a second city-based tax on businesses, making Seattle the only city in the state to double-tax businesses.

The list goes on, through three more points. We recommend you read it. The conclusion:

As it stands, the proposed tax on jobs is ill-advised, extreme, and will result in job losses and harm workers.

Legal scholar Richard Epstein puts the head tax at the top of his list of three misguided Seattle policies (the other two are the ordinance preventing landlords from doing criminal background checks and minimum wage). In his Hoover Institution blog post, “Senseless in Seattle” (will the city never shed its ties to that movie?), Epstein writes,

Amazon already pays its fair share of real estate and other taxes to the city. Most of its billions in profits are not generated in Seattle, but by its huge national and global footprint. It would hardly do for every locality to replicate the Seattle tax. Nor should they try… Picking on one group of successful firms will likely reduce their presence or even drive them out of town, as with Amazon. And it will surely deter other successful firms from coming in…

No city should cripple or kill its strong horses. Instead it should expand its tax base through private development that could cater these underserviced communities.

Seattle Times business columnist Jon Talton writes of Amazon’s growth in the city,

From 2010 to June 2017, HQ1 brought $3.7 billion in capital investment, $25.7 billion in employee compensation, $43 million paid for employee transit benefits, and 53,000 additional jobs as a direct result of Amazon direct investments. Hundreds of millions of dollars went to the city treasury thanks to construction fees and taxes.

He adds,

Seen in this frame, the City Council majority support of a tax on large employers and some members’ antipathy  toward Amazon is a staggering act of ignorance and destructiveness.

…But it’s wrong to frame this as a battle between City Hall and Amazon. The tax would affect as many as 585 companies in the city limits, from tech giants to local manufacturing concerns. With its lower cost than the Bay Area but a high talent pool, the Seattle area has attracted a Who’s Who of tech outposts. From February 2010 to March 2018, the Seattle-Tacoma-Bellevue metro area added 390,000 jobs in all sectors..

The head tax won’t be paid out of CEO compensation but from making fewer hires here.

He describes the ripple effect, making a too-often overlooked point:

…almost all small business depends on big companies. The latter also provide the best pay and capital investment. The former benefit from being vendors or providing services. No wonder my blue-collar barber was so angry over the tax — potentially fewer heads for him to cut.

There’s more. As we noted here

Heather Redman, a venture capitalist and vocal Seattle tech industry advocate, strongly believes in the first scenario. Here’s what she told GeekWire in the wake of Amazon’s announcement Wednesday:

I think [Amazon] will definitely stop or slow its growth in Seattle if the tax passes. I think there’s no question about that.

Need more? Tax Foundation analyst Jared Walczak writes,

Proponents of the proposed Seattle business head tax have gleefully presented it as a tax specifically targeting the city’s large tech companies. It’s destructive as an employee hours tax (over 26 cents per hour, or $500 per year for full-time employees) and it only becomes more onerous for tech sector employers once it transitions to a payroll tax, scheduled to happen in year three. The problem with that? Increasingly, tech companies don’t need to be in Seattle…

It comes on the heels of a long string of tax proposals considered in 2017, many of them quite arbitrary, which create substantial business uncertainty. Other cities have high tax burdens, but few have as many tax experiments in the pipeline as Seattle does. At some point, employers feel besieged.

Given that Chicago scrapped a business head tax less than one-tenth as large as “a job killer,” the latest in Seattle’s long line of proposed tax increases has the potential to be shockingly counterproductive.

The proposal clearly has sparked heated disputes among partisans. But it has also generated an unusual consensus among disinterested analysts. It’s a bad idea that, in the former mayors’ words, “will result in job losses and harm workers.” And more.