Seattle City Council advances new business tax as urban centers nationally face daunting recovery challenges.

A committee of the Seattle City Council yesterday advanced a new business tax proposal. (We don’t think this is what state leaders mean when they talk about the state’s “innovation economy.”) The Seattle Times reports,

The Seattle City Council took a major step Wednesday toward adopting a new tax on big businesses, voting in a budget committee meeting to advance a proposal expected to raise more than $200 million per year.

A final vote by the full council is planned for Monday, and passage would mark a turning point at City Hall.

Probably not just at City Hall. These tax increases have a direct impact on businesses, especially those just emerging from the devastation of the pandemic. As we wrote earlier, Seattle is also considering a capital gains tax. The new business tax is one of two proposals council members had floated. 

The Times reports,

Dubbed “JumpStart Seattle” by lead sponsor Councilmember Teresa Mosqueda, the new tax would would target companies with many highly paid employees, whereas the 2018 “head tax” would have applied to all employees at large companies.

It’s not insubstantial.

Under the JumpStart tax, companies with annual payrolls over $7 million would be taxed based on their pay to employees making over $150,000 per year. As amended in the budget committee Wednesday, the tax rate would range from 0.7% to 2.4%, with tiers for various payroll and salary amounts.

The Seattle tax activity comes as the pandemic is transforming urban downtowns, as Aaron Renn writes in Governing magazine.

The pandemic has dealt American downtowns severe blows across multiple dimensions. The first is the impact on tourism and visitor-related spending. The convention and events business is a big pillar of economic activity in many downtowns, and some of them rely heavily on tourism as well. This supports not just the hotel industry but also restaurants, clubs and other attractions. This industry has all but been shut down, and there’s little prospect of an immediate bounceback. This puts a lot of the businesses that depend on visitors at risk of shutting down permanently…

Property destruction accompanying some of the protests in the wake of the deaths of George Floyd and other African Americans at the hands of police adds to the uncertainty and risk of downtown investment. This seems likely to increase business insurance costs, for example. While the number of people who will avoiding downtowns over the long term on account of this is likely very small, any negative impact will be particularly felt in this precarious business environment.

All of these factors mean that many American downtowns risk getting set back a decade or more in the course of only a few weeks.

An odd time to increase business taxes.