The Seattle City Council passed a new tax on big businesses Monday that’s expected to fund economic relief and core services during the coronavirus crisis and raise more than $200 million per year for housing, local business assistance and community development in the long term.
The “JumpStart Seattle” tax championed by Councilmember Teresa Mosqueda will target companies with highly paid employees, like Amazon.
“This is a huge win,” Mosqueda said. “This is about caring for Seattleites.”
Monday’s 7-2 vote represents a breakthrough in a long-running debate at City Hall about how to address the housing and homelessness crises that have in recent years accompanied Seattle’s tech-business and construction boom.
The council and Mayor Jenny Durkan passed a per-employee “head tax” on large corporations in 2018 that would have raise $47 million per year. But they repealed that measure less than a month later under pressure from Amazon, other businesses and many voters, with critics warning the tax could discourage job growth and raising concerns about inefficient spending.
The political landscape has changed since then, and the JumpStart tax is improved legislation, proponents said leading up to Monday’s action.
Five council candidates defeated opponents backed by business groups in last year’s elections. Studies have shown the region desperately needs more subsidized housing, and the COVID-19 pandemic has rocked the local economy while ripping a hole in a city budget reliant now on property and sales taxes.
Also, the Black Lives Matter movement has stirred up Seattle politics, and a “Tax Amazon” campaign put pressure on the council by threatening to take a proposal to the November ballot.
The JumpStart tax is tailored so that most of the money will be paid by those companies that are best able to shoulder the load, proponents said.
Andrea Caupain, chief executive at Byrd Barr Place, said she supported Mosqueda’s tax partly because her Central District nonprofit, which provides housing assistance and operates a food bank, is serving twice as many clients recently. She attributed Monday’s vote to a sea change in local politics.
“COVID has laid bare … that we need to do better,” Caupain said. “COVID and this new Black Lives Matter revolution have woken people up.”
Mosqueda was joined by council members M. Lorena González, Lisa Herbold, Tammy Morales, Kshama Sawant, Dan Strauss and Andrew Lewis in voting for the tax.
Sawant credited the “Tax Amazon” movement and called the measure a “victory for working people,” while Morales described Monday’s vote as “a crucial step to embrace equity and reject corporate influence” and said organizations led by Black residents should be consulted about the investments to come.
“We are … supporting our city and our most vulnerable,” Mosqueda said, comparing the tax to Seattle’s pioneering $15-an-hour minimum-wage law.
Alex Pedersen and Debora Juarez voted against the legislation, arguing it could hurt the economy during a turbulent time and should instead be sent to the November ballot for voters to decide.
“Seattle has a well-established, democratic tradition of giving voters the final say,” Juarez said.
Durkan also has expressed concern about the measure, warning that companies might consider moving jobs elsewhere when trying to decide whether to have white collar employees working at home during the pandemic return to Seattle. Six or more council votes would be needed to override a mayoral veto; Durkan didn’t say Monday what she intends to do.
Businesses with at least $7 million in annual payroll will be taxed 0.7% to 2.4% on salaries and wages spent on Seattle employees who make at least $150,000 per year, with tiers for various payroll and salary amounts. For example, a company with an $8 million payroll and one employee making $180,000 would pay a tax of 0.7% on $180,000 — or $1,260.
The 2.4% rate, meant to apply to a company like Amazon, will apply to salaries of at least $400,000 at companies with at least $1 billion in annual payroll. Stock grants would be taxable, but not stock options, council staff have said.
The tax could apply to about 800 businesses, to varying degrees; government entities and grocery stores will be exempt as long as the tax is in place, as will certain health care nonprofits (for at least three years).
The council also passed a high-level spending plan Monday. The money from the new tax will be allocated to coronavirus economic relief this year and preserving city services next year, the plan says. Starting in 2022, the revenue will fund affordable housing, community-led development, local business assistance and Green New Deal investments.
The council intends to consider a coronavirus-relief bill and a long-term spending resolution for the tax in the coming weeks, Mosqueda has said. The tax won’t take effect until next year; to provide coronavirus relief this year, her plan calls for the city to borrow from its emergency and rainy-day funds.
Pedersen and Durkan objected Monday to the council passing the tax before hashing out a detailed spending plan.
The Seattle Metropolitan Chamber of Commerce, the Downtown Seattle Association and a number of neighborhood business associations opposed the JumpStart tax. Amazon declined to comment Monday. The Downtown Seattle Association didn’t comment on whether business leaders will launch a campaign for a voter referendum, as they did in 2018.
“Taxing jobs is bad public policy, and it is even more concerning as Seattle faces double-digit unemployment,” the Association said in a statement.
“The City Council will be sending tax bills to companies across multiple sectors that have their doors closed and have been forced to lay off employees,” the Association added. “Job taxes … have a history in Seattle of being enacted and then later repealed. This tax should follow that fate.”
But dozens of community groups, social service nonprofits and religious groups endorsed the JumpStart tax in recent weeks. During a public comment period Monday, speakers overwhelmingly supported the measure. Labor was split in 2018, with unionized service workers backing the head tax and construction workers opposing it. This time, unions united behind the tax.
Joe Mizrahi, secretary-treasurer for supermarket workers union UFCW 21, said Mosqueda made “some smart adjustments” that addressed concerns in 2018 about the head tax hurting supermarkets and their workers. Amazon’s losses in last year’s elections emboldened Mosqueda and her allies, Mizrahi said.
Jacob Vigdor, a University of Washington public policy professor who’s studied the Seattle labor market, agreed that the JumpStart proposal took some sting out of the opposition by exempting lower-paying jobs at local businesses.
“Politics is about coalition building, and two years ago Amazon was able to construct a coalition,” Vigdor said. “But there aren’t a lot of people working for Bartell Drugs making $150,000. The way this tax has been structured distributes the burden of the tax to the businesses with a greater capacity to pay, which is the economically sensible thing to do.”
Earlier this year, Durkan helped craft a state House bill that would have allowed King County to adopt something similar to the JumpStart tax. That bill didn’t survive the Legislative session.
Durkan spokesman Ernesto Apreza said Monday the mayor would still prefer a regional tax on businesses paired with a 1% city income tax on households.
“The mayor has significant concerns about the impact (of the JumpStart tax) on the city’s ability to rebuild an economy,” Apreza said, suggesting the legislation “may be the largest new tax ever passed without voter approval” and could apply to as many as 78,000 salaries.
“Our shared goal should be to ensure companies and small businesses stay and thrive in Seattle” and pay taxes in the city, Apreza added.
For comparison’s sake, the JumpStart tax is anticipated to raise more than $200 million per year, whereas Seattle’s current property-tax levy for affordable housing, approved by voters in 2016, is raising $290 million over seven years.
Mosqueda’s proposal initially included a 10-year sunset clause; the council replaced that in the budget committee last week with a clause meant to ensure the tax will stop if the state Legislature or county adopts a similar measure. The council voted 5-4 Monday to add a 20-year sunset clause to the plan.
“I’m committed to a regional approach,” said Lewis, who sponsored the 20-year sunset. “But we can’t wait for Olympia to provide this relief.”
Seattle Times staff reporter Benjamin Romano contributed to this report.