The city is the mirror image of what's happening in D.C.: tax policy driven by ideology.
The tax overhaul plan of President Trump and the Republican-controlled Congress remains incomplete, but we can bet it will focus on tax cuts. Tax cuts for the richest, especially. This has been GOP orthodoxy since Ronald Reagan’s election, although such tax cuts raise the deficit and debt, increase inequality and hurt the economy by hamstringing federal investments. They have brought the largest income redistribution — up — in American history.
Seattle operates in another country, an incredibly prosperous city with progressive, even socialist, ambitions. Whereas Republicans repeat “tax cuts” with the tirelessness of the Aflac duck, blue Seattle is the mirror. Here, taxes must always go up.
Thus, Seattle Mayor Tim Burgess, the closest thing we have to a pragmatic and constructive centrist, rightly said another tax on business is a bad idea. But, because taxes and spending must always rise, he proposed instead substituting a soon-to-be-implemented tax on short-term rentals. At issue is a proposal in City Council to seek even more revenue for the broad, complex set of social ills and conditions shorthanded as “homelessness.”
Here, it’s critical to note that the city alone is spending $61 million on homeless services this year, up from $39 million four years ago. Council members want to spend even more next year. And yet despite the increased spending, the number of street people and campers has risen dramatically. This at a time when chronic homelessness has been declining nationally. Because Seattle offers generous benefits, pulled-back policing, legal weed, a tolerant atmosphere and no barrier to entry, it’s no surprise that the homeless population keeps rising as taxpayer funding continues to increase.
The Rule of Holes: When in a hole, stop digging. But Seattle won’t stop: The Council is captured by “activists” and social-service providers, and the city has a liberal bent. Meanwhile, rail transit to West Seattle and Ballard are shamefully behind. One reason Scandinavian nations willingly pay high taxes is that they can easily see them at work, from universal healthcare to high-speed trains. The average Seattle tax-paying worker has not seen quality of life rise here in most areas for all this money spent.
Overall, the council appropriated more than $5.4 billion total for this year, up from $3.3 billion in 2007, before the Great Recession. That works out to about $7,600 per person, very high compared to other cities nationally. Because Washington lacks an income tax, it appears that even average Seattleites aren’t overtaxed. The burden of sales taxes falls heavily on the poor. But Washington taxes businesses in a variety of ways and Seattle has the highest taxes in the state. These include taxes on gross receipts (whether the firm makes a profit or not), commercial real estate and other areas, with a few exemptions.
To be fair, spending and taxes alone mean nothing. The lowest-tax cities provide the least services, while facing enormous backlogs in meeting urban needs and even basic maintenance of streets. Higher-tax blue cities have the most vibrant economies in the country.
But one has to ask, when does an inflection point come at which businesses say “enough” and move? Never? Want to bet? A reality check will come with an inevitable slowdown in construction, a huge provider of city revenues. Before that comes, it’s wise to remember that taxes drive down the entity being taxed, e.g. tobacco sales. So there’s a balance to be found, accountability required.
Not every tax is good, not every tax cut is bad, and vice versa. In today’s deeply divided America, however, we get to see orthodoxy drive policy on right and left. It won’t turn out well, even if it appears that prosperous Seattle can to get away with it, at least in the near term.
Today’s Econ Haiku:
If Trump dumps Yellen
Another norm bites the dust
Are you Fed up yet?