For all the fury and frustration churning in Seattle over the city’s proposed head tax, we somehow overlooked a wonky blog post by economist Jacob Vigdor, a professor of public policy at the Evans School, University of Washington. (Vigdor directs the Seattle Minimum Wage Study.)
The employee hours tax is a tax levied on businesses as a function of the number of hours worked by their employees. Seattle’s proposed tax amounts to 26 cents per hour worked, whether that hour is worked by a minimum-wage earner or Jeff Bezos. So the argument that this is in fact a “progressive” tax completely falls apart if businesses were to pass the tax along to workers, in the form of reduced wages or reduced employment…
The data are pretty unequivocal: taxes on employment hit employees, not employers. A study of Philadelphia’s wage tax, in effect since the 1930s, blames that tax for hundreds of thousands of lost jobs over decades. A study of payroll taxes in Washington state — a particular payroll tax that is paid by the employer — concludes that tax increases are “largely passed on to workers through lower earnings.“
These results help explain why the non-partisan Tax Policy Center rates payroll taxes as regressive: they are passed on to workers, and low-income households end up bearing a larger burden because wealthy households earn less of their income from work. And that’s just a payroll tax: a flat percent of wages paid that would hit a minimum-wage worker and Jeff Bezos at the same rate on their earned income. An employee hours tax is even more regressive, because it represents a bigger hit for the lowest earners.
Read the whole post. He sets up an exercise in logic that leads you inevitably to the conclusion he draws.
Bottom line, where Seattle’s civic leadership would have you believe that the employee hours tax is a “progressive business tax,” it’s actually a regressive worker tax.
If you’re wondering how the city got to this strange conflict, the Seattle Times provides a useful explainer.