Seattle's Proposed Employment Tax is Just the City's Latest Self-Inflicted Wound

City officials seem dedicated to driving away the businesses that create prosperity.


Alex Milan Tracy/Sipa USA/Newscom

As self-inflicted wounds go, Seattle officials seem to have stumbled on a winning formula for tanking their city's economy and their constituents' prosperity. All it takes is a deep antipathy for the laws of economics and a series of policies based on the same, culminating in a proposed tax on hours worked by the employees of large companies to fund social programs that are making little if any headway in their supposed missions.

"An employee hours tax is hereby levied upon and shall be collected from every person for the act or privilege of engaging in business activities within the City," reads the tax bill, which appears to have four of the necessary five city council votes locked up. "The tax shall be measured by the number of employee hours of work conducted within the City during each quarter of the calendar year."

Every hour worked will bring in $0.26 from large employers with revenues of more than $20 million, for a grand total expected to tally up to between $25 million and $75 million. The bulk of that take is earmarked for the city's years-long campaign against homelessness.

Why the wide range for projected revenue? Well, predicting economic activity is an inexact science at best—especially when the companies you're planning to soak threaten to go elsewhere and take their jobs with them. Specifically, in response to the proposed employment tax, Amazon paused construction on a downtown office tower and may sublease space in another building rather than use the space itself.

"The company helmed by Jeff Bezos has planned to fill its 17-story 'Block 18' tower and the skyscraper being built at Rainier Square with an estimated 7,000 to 8,000 workers," the Seattle Times reported.

"Jeff Bezos is a bully," the city council's resident overt socialist, Kshama Sawant, huffed in response.

But it's not as if Seattle officials had no warning that Amazon was unhappy with the city's anti-business rhetoric and its intrusive policies which include high taxes, a soaring minimum wage, a nanny-ish sugar tax, and expensive labor mandates. In setting the expectations for a second headquarters—HQ2—Amazon specified that it was looking for "a stable and business-friendly environment." Seattle city council members responded just last October with a letter pleading, "[t] o the extent that this decision was based on Amazon feeling unwelcome in Seattle, or not being included in some of our regional decisions, we would like to hit the refresh button."

And they had good reason to plead. In 2015, the city's budget department attributed 43 percent of jobs created in the post-Great Recession recovery to Amazon and Boeing, directly and also indirectly through secondary and tertiary effects.

Maybe, just maybe, employers and workers targeted by the proposed employee hours tax might be less resistant to being soaked if the money wasn't so likely to be unproductively pissed away while homelessness continues to worsen. But this week Seattle residents learned that "KOMO News has obtained an unpublished report that shows how the city spent more than $53 million on the homeless in 2017. Although millions have been spent, Seattle's homeless population continues to rise."

Apparently, $20 million of the money went to emergency and shelter services, and "only six percent of people who use those services were able to find permanent housing."

The Associated Press noted last year that "while homelessness has decreased nationwide and in many cities, the problem has grown in others, such as Seattle. In 2016, a one-night homeless count found nearly 3,000 people living outside in this city of about 650,000, marking the fourth straight year of increases."

Even before that, in 2015, the local NPR affiliate found that the city's 10-year plan to end homelessness was doing nothing of the sort. "[T]he 10-year plan is ending and local homelessness is worse than ever" even though "[t]he ranks of the homeless have declined in Washington state and nationally during that time."

Then again, part of that homelessness is due to high housing costs fueled by demand from highly paid employees of the sort of large companies targeted by the employee hours tax. Building takes time, so supply can't immediately catch up to demand—especially when real estate development is regulated by the same city officials doing their best to alienate the city's large employers. Among other rules, Seattle mandates a minimum number of parking spaces be included in residential construction, and also mandates that developers either include low-cost housing in their plans or else contribute to a housing fund—measures that raise costs.

So chasing big employers out of the city would certainly reduce the demand driving rising housing costs. But that sort of gut-punch to the economy might not be a "solution" that Seattle residents ultimate appreciate.

Of course, Seattle isn't the only city to try to cripple itself with taxes and regulations. Cities across the country have been hiking minimum wages—an issue on which Seattle is a leader. That's unfortunate, given the negative impact researchers find the requirement has had on employment there. And Seattle's real estate red tape has yet to reach the heights of complexity and corruption that, in New York City, requires an industry of middle-men "expediters" to navigate—and has trashed the construction of new housing in San Francisco.

Nobody doubts that in its search for an HQ2 location, Amazon wants a more business-friendly environment. Some cities are basing their pitches on exactly that assumption (they're also being warned to focus on the tax and regulatory environment, rather than expensive bribes to the company). Locales that want healthy economies will be well-advised to avoid emulating Seattle's mistake of abusing the businesses that help to create prosperity.