Academic research shows this type of tax on employers kills jobs and lowers wages.
The Seattle City Council may vote soon to impose what’s called the employee hours tax, or “head tax,” to raise new revenue to address homelessness and build more affordable housing.
A tax on jobs — which is exactly what this tax would be — is truly misguided. Here’s why.
First, academic research shows this type of tax kills jobs and lowers wages. Researchers at the University of Pennsylvania and the Federal Reserve Bank of New York estimated that Philadelphia’s version of this tax caused the loss of tens of thousands of jobs over a 30-year period. Another study from the Massachusetts Institute of Technology found that a similar tax obligation was shifted by employers entirely to employees through lower wages, something that’s very likely when the Seattle tax converts to a payroll tax in two years. The proposed Seattle jobs tax will harm workers.
Second, Seattle already has one of the highest city-based business taxes in the state of Washington. Passage of the “head tax” would impose a second city-based tax on businesses, making Seattle the only city in the state to double-tax businesses. This approach to tax policy sends an extremely negative message about Seattle’s desire for economic growth and a friendly business climate. Frankly, Seattle should be sending exactly the opposite message, welcoming the investment, innovation and job creation of our business sector.
Third, the proposed tax is stunningly high at approximately $500 per job per year for any commercial business that has gross revenues (not net profit) of $20 million or more annually. Many locally owned Seattle companies will each pay hundreds of thousands of dollars — some millions of dollars — a year to city government under this new tax. This type of jobs tax is rare in the United States to begin with, but the $500 per job rate is unprecedented. The proposed Seattle jobs tax is extreme.
For comparison purposes, Chicago once had a $48 annual per-job tax which they reduced to $24 per job before eliminating it in 2014 when Chicago officials realized it resulted in job losses. Seattle’s proposed jobs tax is 10 times higher than Chicago’s repealed tax.
Fourth, local governments will spend nearly $200 million this year in King County addressing homelessness. Seattle alone will spend $63 million on direct services to prevent homelessness or to serve those living unsheltered, an increase of more than 60 percent since 2014. Yet, the problem is getting worse as we can all see in our neighborhoods, in our parks, and along our streets and sidewalks. We embrace proactive, results-focused efforts to move people from the street to permanent housing, especially those suffering mental-health and substance-abuse challenges. But, our taxpayers are absolutely right to demand greater accountability and improved results.
Finally, the people of Seattle are growing increasingly frustrated with city government’s inability to control the trash, dirty needles, illegal encampments, crime and disorder associated with some of the individuals living outside across our city. We share their frustration. Before raising taxes, city leaders should demonstrate their ability and willingness to enforce basic norms of behavior so all of the people of our city, including those who commute into the city for their work and tourists, can experience a clean and safe city environment.
We are encouraged that Mayor Jenny Durkan and King County Executive Dow Constantine have started a conversation to potentially consolidate their now separate homelessness services. These efforts should be quickly merged to achieve greater effectiveness, focus resources on those suffering chronic homelessness, avoid duplication of services and adhere to higher standards of performance. Results matter and that’s where the focus should be in order to persuade taxpayers that local government can be successful in resolving this challenge.
As it stands, the proposed tax on jobs is ill-advised, extreme, and will result in job losses and harm workers. The City Council should instead embrace the regional planning process currently underway to identify specific solutions to homelessness, recommit themselves to only funding proven, results-based programs, and enforce norms of behavior that will ensure a clean and safe city for everyone.