Seattle is facing more economic uncertainty than the “Boeing bust” of the 1970s, in a world where a pandemic and nationalism are combining to threaten a repeat of the Great Depression.
The unemployment rate is close to 14%, hotel revenues are off 85% compared with this past year, the lucrative cruise season is shut down along with a huge swath of businesses that can’t work remotely or provide essential deliveries. All this is exponentially worse than during the Great Recession.
Amid this crisis, the City Council passed a tax on large- and medium-sized businesses with “highly paid” employees. I use quotes because the levy begins at $150,000 a year, which is hardly outrageous compensation in a city with so many advanced industries and headquarters.
The new tax will begin for companies with a payroll of a measly $7 million — this is hardly confined to Amazon. No wonder it sweeps up about 800 companies and other entities (although some nonprofits may be exempted). And it is on top of the state business and occupation (B&O) tax and other fees.
Proponents claim it will raise more than $200 million a year, which would be used for pandemic relief and then numerous programs. If the axiom “If you want less of something, tax it” holds, the real revenue numbers will disappoint.
Whatever the outcome, this is the crowning achievement (so far) for a City Council that has trended further and further left since district representation began in 2015.
A majority of its members place social justice as the No. 1 priority and hold Seattle’s remarkably diverse and powerful economy in suspicion, if not contempt. Chief among the “enemies of the people” is Amazon’s headquarters.
An attempt at a jobs tax, which would have affected nearly 600 companies, passed in 2018 but was repealed when it likely faced a referendum. The new tax will apparently be bulletproofed from voter input.
To be fair, America lost its progressive tax system after repeated tax cuts starting with the Reagan presidency. Washington lacks a state income tax (producing revenues that could be shared with cities). Frustration among even pragmatic progressives is understandable.
The problem is that the Seattle City Council’s suzerainty covers only 84 square miles in a much larger metropolitan area. By contrast, a new income tax approved by voters in Portland applies to the three counties of the region.
As a result, Seattle might be at a competitive disadvantage in job retention and creation. The “JumpStart Seattle” tax could end up becoming the Bellevue-Redmond Full Employment Act, too. The Eastside’s appeal will be enhanced when light rail connects it to Seattle. Even lagging Tacoma might gain an edge.
The tax risks inhibiting business startups in the city. And the worst outcome would be the loss of major headquarters. These crown jewels generate good jobs and tax revenue, train leaders who go on to establish new companies, and provide disproportionate aid to the nonprofit sector.
The “back to the city” movement from which Seattle benefited so mightily is already under pressure from the pandemic. Even though some of the densest cities in the world turned in low rates of COVID-19, will Americans abandon central cores and return in force to the suburbs or work from home? Will Superstar Cities such as Seattle bounce back, as many urban experts expect, or will Seattle shoot itself in the foot and reload?
Another frustration is that City Hall has shown itself to be highly ineffective in using the bounty provided by the revenues from the 2010s boom.
And what a boom it was, with Seattle consistently the crane capital of America.
The city reaped $466 million in the sales tax related to construction of buildings in 2016. Lodging taxes from hotels totaled $169 million. A 2015 report found that a typical high-rise contributed $3.5 million in one-time construction revenues and $6.6 million in ongoing annual revenue.
Even as things slowed in 2019, the Seattle Department of Construction and Inspections collected nearly $78 million in permits and fees. B&O from construction was $33 million.
Amazon alone reportedly paid nearly $300 million in state and local taxes in 2018.
This economic expansion allowed the city to increase its budget by 40% between 2013 and 2017.
Yet homelessness grew. Low-income housing failed to keep up with needs. Now we have no indication that the additional revenue will be more effectively spent, or accountability better enforced.
Meanwhile, taxpaying, law-abiding citizens and business owners, including the world talent that has flocked to Seattle, expect livability. That includes safe and clean streets. It’s not a binary choice between this and social justice. We need both.
One thing that’s sure is that big companies will turn their tax avoidance departments to minimizing their exposure here — if they stay.
Blue cities do better economically than red ones. Their tax policies vary, but in almost every case they have at least a state income tax. Do people and companies relocate because of taxes? The evidence says no (although it’s unclear how that applies within a metro area). And they’re willing to pay for Superstar Cities.
Wichita, where low-tax Koch Industries dominates state and city politics, is not going to eat our lunch. It can’t even eat the crumbs from Warren Buffett’s Omaha.
On the other hand, Austin, a blue technopolis in red Texas, lacks either a state or local income tax. It does offer the assets that attract top talent.
The marginal costs of the new income tax might not affect Seattle’s prosperity, unless they represent a mindset among our political elite that wants to keep slashing at the golden goose. And right now, the goose is in lockdown with lasting damage likely even under the most optimistic scenarios.
Historians will no doubt find a rich lode in the run-up to last year’s Council elections. Amazon blundered by pouring $1.5 million into races, motivating opposition and allowing the election to be framed as an attempted takeover by big business.
Now Seattle is at a tipping point and no algorithm can predict what’s next.