The Seattle City Council and Mayor Greg Nickels plan to repeal the employee head tax, which they say discourages hiring.

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Seattle Mayor Greg Nickels and some members of the Seattle City Council announced Tuesday that they want to repeal the tax — known formally as the employee hours tax — adopted in 2006 to raise money for transportation improvements.

In a news release Tuesday, Nickels said the poor economy caused him to rethink the tax.

“In these tough economic times, we want to do everything possible to create jobs and help businesses grow,” he said.

The announcement drew praise from members of the business community, who opposed the $25 per employee tax from the start.

Nickels proposed the tax as part of a revenue package called “Bridging the Gap” to help catch up on $500 million worth of city transportation projects.

The package uses the per-employee head tax, a tax on commercial parking lots and a voter-approved property tax to finance major projects and catch up on street and sidewalk maintenance.

Councilmember Tim Burgess, who campaigned in 2007 on eliminating the head tax, said it’s too hard for small businesses to figure out how much they’re supposed to pay. Employees who commute by bus, car pool, bike or foot are exempt, and there is a complex formula to figure out how much to pay for part-time employees. And the tax could discourage hiring at a time when the city should be supporting job creation, Burgess said.

“I think more than anything it was a symbolic measure that inadvertently sent the sign that job growth and a strong business environment weren’t important to the city,'” he said.

Council budget-committee Chairwoman Jean Godden said she will vote to keep the tax.

“I’m certainly no fan of the head tax, but I am concerned that this is not the right time to be reducing city revenues,” she said, likening repeal to trying to dig your way out of a hole.

The city has been cutting its budget because of a revenue shortfall and faces a gap of at least $24 million in 2010.

The tax raised about $4.5 million last year.

Burgess said the city can make up some of the money with the commercial parking tax, which is bringing in more than expected, and by paying off bonds more slowly. Some transportation projects may have to be put off, he said.

The announcement defused the issue for mayoral candidates challenging Nickels’ bid for a third term. At least two of them — former Sonic James Donaldson and T-Mobile executive Joe Mallahan — have called for repeal of the tax.

In a news release, Mallahan praised Nickels and City Council members for following his lead.

“I am very pleased Mayor Greg Nickels heeded my call to stop penalizing Seattle businesses for creating new jobs,” he wrote.

Councilmember and mayoral candidate Jan Drago called Mallahan’s statement “completely disingenuous.”
“Joe Mallahan had nothing to do with this,” she said.

Drago voted for the tax in 2006 but said it’s become a bureaucratic headache that doesn’t generate much money. The council should seek a replacement for the money, she said.

Mayoral candidate Michael McGinn said if Nickels truly cared about lowering taxes, he would abandon plans for a waterfront tunnel to replace the Alaskan Way Viaduct. McGinn has made opposition to the tunnel the cornerstone of his campaign.

Emily Heffter: 206-464-8246 or