Seattle made waves in May when the City Council unanimously passed a tax that would impose a substantial business head tax amounting to about $275 per employee at companies with more than $20 million in receipts. That tax was a substantial step back from the higher initial proposal, a tax of $500 per full-time employee per year. The tax’s passage sparked backlash from companies and residents alike, and this week the City Council reconvened to repeal the ordinance in a 7-2 vote.
Much of the revenue that would have been raised would have been directed to building affordable housing units in the hopes of staunching Seattle’s growing housing cost and homelessness problems. Seattle planned to use the initial tax revenues for 1,780 affordable housing units over five years. Under the smaller tax that was ultimately passed, the correspondingly lower revenue would have led to the construction of about 600 units of subsidized housing over a five-year period.
As I noted in a previous column when the initial tax was being discussed, this new construction would have done little to attenuate the broader problems related to high housing costs and a limited supply of units in the area. Large companies with operations in other jurisdictions might have decided to expand in other areas instead of adding jobs in Seattle. Other firms may have decided to eschew low-wage workers and contract out to other firms to avoid the tax. Most of these maneuverings from affected companies would have reduced the number of opportunities for workers in Seattle, many of them lower-wage workers who are also grappling with the high cost of housing in the area.
While the incremental additional funding from the tax would in all likelihood have been ineffective in addressing these long-gestating problems, they would have introduced new problems that may have exacerbated the situation for people needing low-cost housing.
Much of the focus in the coverage of the repeal was on the reactions of the affected companies, and these companies did issue statements expressing their concerns about the tax and detailing how it might affect their operations. However, the opposition does not just come from large businesses.
When the original tax was being considered last month, union members of the Iron Workers Local 86 organized a protest of the head tax, citing their concerns that the tax would limit jobs for their members.
Tim Burgess and Charles Royer, two former mayors of the city, co-authored an op-ed in The Seattle Times to voice their opposition to the initiative, saying it was “ill-advised, extreme, and will result in job losses and harm workers.”
In a poll of 400 registered voters from Seattle-area station KIRO 7, 54 percent of respondents said they opposed a head tax on businesses bringing in more than $20 million per year, while 38 percent expressed support. At the initial levy of about $500, opposition rose to 70 percent.
The ordinance might have been repealed even if Seattle’s policymakers had not decided to act, as a repeal initiative had reportedly already collected 45,000 signatures, more than twice the amount it needed to get onto the ballot in November.
In 2009 the city had repealed a $25 per head tax on worker hours that raised about $4.5 million in the previous year. Maybe the lessons learned will stick the second time around. Now, after rounds of bickering, the City Council has gone from considering one tax, unanimous passage of a scaled-back version, to majority repeal within a few short weeks. While the ordinance never went into effect, businesses and residents alike are angered by the ordeal, and the city is no closer to making housing in the area less costly.
Mountain View and Cupertino, other cities home to burgeoning technology companies, have been considering similar taxes. They would hope to funnel the revenue into areas such as transportation and affordable housing. The experience in Seattle, and the quick reversal from the policymakers there, should lead other cities to reconsider making a similar mistake.
Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes.
Editor’s Note: This piece was originally published by Economics21 at the Manhattan Institute.