In his latest op-ed in the Washington Post policy scholar Jared Bernstein wades into Seattle’s controversial head tax for “large” businesses with a disappointing offering. He gets off on the wrong foot with this right at the beginning:
Let’s talk about this “head tax” on large businesses — those with gross revenue above $20 million — that the Seattle City Council unanimously passed this week to help deal with the city’s worsening homelessness problem.
$20 million in gross revenues doesn’t necessarily indicate a large business. It almost certainly indicates a small one. According to the standards used by the Small Business Administration, what constitutes a small business varies by sector. A $20 million construction company, supermarket, or used car dealer is a small company. And companies over the SBA’s standards for small companies aren’t large companies. They’re medium-sized companies.
Here’s a handy rule of thumb. A company under $100 million in gross annual revenues is a small company. A company from $100 to $1 billion in revenues is a medium-sized company. Over a billion is a large company. In other words the Seattle head tax is a tax on most businesses, affecting all but the smallest businesses, mom and pop shops.
Let’s continue. He then tries to articulate a case for special taxes on Seattle businesses to pay to ameliorate the problem of homelessness:
These companies are better known for putting their hands out for tax breaks in exchange for the added economic activity they bring to the places where they locate.
As stated that’s irrelevant. Dr. Bernstein makes no case that the businesses in Seattle on which the tax is being levied including Amazon have been the beneficiaries of such tax breaks. Was Amazon lured to Seattle? Or was it started in Seattle because Jeff Bezos had decided to move from New York to Seattle?
This is relevant:
But while such activity is welcomed by many, it also creates greater demand for public services, for schools, police, infrastructure, maintenance, etc. It also raises housing prices in these areas.
but the case would be much better if the threshold for the tax was $100 million rather than $20 million. I suspect that a downtown Burger King franchise is a $20 million business but it probably isn’t attracting people to move from New York to Seattle and, consequently, increasing housing prices.
He then handwaves around first one potential solution to the problem:
So far, I’ve heard two ideas offered as alternatives to the tax. First, in a debate on CNBC Tuesday, Jimmy Pethokoukis argued that if the city would just revamp its restrictive zoning laws, more affordable housing would be built. I don’t doubt that claim, and Seattle is one of many cities wherein housing costs are inflated by such restrictions. But that’s just not a workable solution to Seattle’s real-time homelessness problem. Those zoning debates go on forever, and even in the unlikely event that restrictions were quickly loosened, it would be years before there was enough affordable housing to make a difference.
Just as zoning debates may go on forever, so do tax debates. Is that a reason for dismissing it? Additionally, the tax won’t generate revenue immediately. The litigation over it will go on for years.
And then he handwaves around the other:
Second, I heard Amazon reps argue that Seattle inefficiently spends its current revenue take. The city doesn’t need more revenue; it just needs to do a better job with what it’s got. Sitting here in the other Washington, I won’t presume to be able to evaluate this claim. But it does sound uncomfortably close to the “just cut out the waste, fraud, and abuse!” admonition one hears all too often in budget discussions, as if there’s a budget line for those items that no one ever thought of cutting.
In other words neither of us know whether reordering of Seattle’s spending priorities would result in funds immediately becoming available to devote to the problem of homelessness.
Unmentioned in the op-ed: Seattle has also imposed a $15 minimum wage. One would think that would reduce the number of jobs businesses are likely to create which might make the poor more able to afford Seattle’s high rents.
But that gets to the next problem. Homelessness isn’t monolithic. People are homeless for a variety of reasons. Some are temporarily homeless for economic reasons, some have mental disorders, some have substance abuse problems, and for some it’s a lifestyle choice. According to this report, 40% of Seattle’s homeless are people with disabilities compared with 16% of the population, something between 13% and 35% have substance abuse problems, 40% are working and would move off the streets if they had the money, and for 7% it’s a lifestyle choice. There’s no word on which segment is increasing the most rapidly. The 40% sounds like the group whose problems are easiest to tackle.
Here’s my proposal. Raise the threshold for the tax to $200 million, use the proceeds for rent subsidies, and eliminate the $15 minimum wage. That won’t solve Amazon’s problem but it might help to ameliorate the problem of homelessness in Seattle.