Seattle Wants Less Employment

I make a general policy of refraining from comment about the political doings of states and localities other than my own but I thought this was sufficiently extraordinary that it deserved note. While you read it, keep in mind the truism that when you tax something, less of it will be produced than otherwise would. The editors of the Wall Street Journal chide the Seattle city council for imposing a tax on large employers:

Seattle’s city council on Monday unanimously approved a $250 “tax” per full-time employee on businesses with more than $20 million in annual revenue. Progressive council members had originally proposed a $500 jobs tax that would have turned into a 0.7% payroll tax in 2021, but then Seattle’s businesses revolted.

Amazon suspended two building expansion projects. More than 100 large businesses including Expedia , Alaska Airlines and Redbox wrote a letter warning that the tax sends the message “to every business: if you are investing in growth, if you create too many jobs in Seattle, you will be punished,” which “will cause far greater damage to Seattle’s growth prospects than the direct impact on the businesses being taxed.”

Three hundred or so small businesses also warned that “continuing tax increases and regulations will only hurt the small business community and will vastly change our city.” Even trade unions begged the council “not to tax our jobs away.”

After the council scaled back the head tax, Amazon said it plans to resume work on one of its expansion projects, but a spokesperson noted that “we remain very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.”

The head tax is merely the city council’s latest depredation against business. In 2015 the council allowed Uber drivers, who are independent contractors, to collectively bargain. A Ninth Circuit Court of Appeals panel on Friday declared that the ordinance violates antitrust laws. The council last year imposed a 2.25% income tax on high earners, which a state court has blocked.

Many businesses have located and expanded in Seattle because Washington state doesn’t impose an income tax. Last year Washington’s GDP growth led the country at 4.4%. But Seattle’s city council seems to think this growth will continue no matter what it does. Ask Connecticut how that turns out.

If they could figure out how to impose a tax on homelessness, they’d really be getting somewhere. Or regulations. Meanwhile, Seattle’s unemployment rate is slightly higher than the national average so I guess they have some headroom for reducing employment.

But things can change very rapidly. Note that Microsoft isn’t subject to the tax—it’s not in Seattle but in Redmond just a few miles away. I imagine large Seattle companies will notice the same thing.

23 comments… add one
  • CuriousOnlooker

    The tax caused quite an uproar. As an example, the Seattle Times opinion page has approved every tax it’s ever commented on, until this one. Note the tax covers the Seattle Times. There were construction union workers booing city councilors when they held a rally at an Amazon construction site.

    Will there be consequences? Amazon last year leased a huge office building in Bellevue, across Lake Washington. HQ2 will be announced soon. Expedia is supposed to move from Bellevue to Seattle next year.

  • TastyBits

    … when you tax something, less of it will be produced than otherwise would.

    This is like the Laffer curve. It is generally true, but there are a few caveats. Like friction or inertia, there is a difference between those who are being taxed and those who are not yet being taxed.

    If I own a gas-guzzler, I will likely pay a higher gasoline tax whether I like it or not. If I am buying a car, I have a choice, but even then, there are other factors. I may prefer a larger vehicle. The tax may not affect me very much. A larger vehicle may be a status symbol.

    I am for lower taxes and smaller government, but in reality, Amazon is not going broke by effectively giving everybody a $250 per year raise.

    It might affect businesses locating or expanding their business in Seattle, but like California, I doubt that Seattle voters want those businesses anyway. It may have an effect in the long term, but as long as they stay out of my neighborhood and pocket, I do not care.

  • Amazon is not going broke by effectively giving everybody a $250 per year raise.

    Actually, I don’t know that. The business group in which it employs most of its people is already losing money. And, as I noted in the post, Amazon can move 2-3 miles and not be in Seattle any more.

  • Andy

    Back when I lived north of Seattle I noted the city was a haven for the homeless. Looks like that hasn’t changed.

    Seems like a pretty dumb decision considering businesses can get all the benefits of Seattle without dealing with the council BS by moving a couple of miles.

  • TastyBits

    @Dave Schuler

    Actually, I don’t know that.

    Amazon could deduct $250 per year from each employee’s salary, and I expect them to pass along the later 0.7% tax. Most Amazon employees could easily absorb losing $250 a year.

    If $250 per employee per year (effectively a raise) will bankrupt your company, you located in the wrong place, and if you did not anticipate Seattle imposing multiple fees and taxes, you should have done more research.

  • If $250 per employee per year (effectively a raise) will bankrupt your company, you located in the wrong place

    The Seattle in which Amazon.com located was a different place from today’s Seattle and Amazon.com and a few other big companies are a major factor behind the differences.

  • Andy

    Amazon reportedly has about 40k employees in Seattle, so it would be about $10 million.

    I assume the tax would only apply to employees who physically work in the city limits, but I don’t know how it’s structured.

  • Andy

    Tasty,

    Sure, most large employers could absorb $250 a year. The issue is that is clearly the starting point with more increases to come.

    Using back-of-envelope figures, the average Amazon Seattle employee earns $110k a year. 0.7% of that is $770 dollars. With 40k employees that $31 million a year, just for Amazon. Could Amazon afford that? I don’t know, but why would they if they had a choice – and they definitely have a choice.

  • PD Shaw

    The actions seems consistent with my view of how minimum wage laws work; more impact on new business than old. I think there are probably a few other things going on:

    1. Concerns about affordable housing in Seattle increasingly mention Amazon as a source of the problem. The revision of the tax to effect only large companies like Amazon is going to be seen as more than a tax-hit, but as evidence that anti-Amazon ordinances will pass, at least for a “good cause.”

    2. Light-rail connecting Seattle to Bellevue is supposed to relieve some of the housing cost pressure, but it will probably encourage business growth in Bellevue because trains go both ways and don’t ask questions.

    3. The good-cause here being homeless, questions become whether money can solve the problem, assuming that City Council doesn’t just use the money to pay for current programs directed at the homeless problem. What happens if the homeless are still with Seattle?

  • PD Shaw

    Not unrelated. With the increase in Amazon Prime by $20 per year, I may be dropping it. It’s not that I cannot afford $20, but I do need to prioritize spending on things I believe I receive sufficient value for. (And I admit going from $99 to $119, does somewhat irrationally seem like more than $20 because it crosses into three figures.)

  • Guarneri

    Tasty

    People drive 30 minutes from IL to IN to save money on cigarette taxes. They clip coupons for pennies. Businesses have moved a half hour from IL to just over the IN border to save taxes. People quit buying soda in Philly etc etc.

    I’d be careful to not be too cavalier about what’s proposed.

  • Guarneri

    PD makes a crucial point. “Sufficient value”

    I moved from IL (as have many others) in part due to the fatigue of being nicked and Dimed. I can afford the damned taxes, I just don’t get value.

  • My wife and I make enough purchases through Amazon that it makes sense for us to continue our membership. However, in 2018 YTD we’ve made about half as many purchases as we did in the same period of 2017 and for about half the value. I don’t know why that is. It just is.

    That means that if Amazon keeps raising its subscription fees and we just hold the line on purchases it will stop making sense quickly. And I’m confident that we’re in the higher echelon of purchasers.

    I’ve said it before and I’ll say it again. I think that Amazon’s retail business model is precarious and it should dump it, remaining in the much more profitable web services business.

  • TastyBits

    Amazon wants to be (or appear to be) part of the social justice movement. Social justice ain’t free, and for Seattle, the entrance fee is $250 per year per person. It seems like a small price to pay for being ‘woke’.

    @Andy

    I agree that $250 is just a starting point, but if Amazon could not figure out that Seattle would eventually begin taxing them, they deserve to go out of business. The $15/hr minimum wage should have been a hint, but I am surprised that Seattle did not wait until after the new building was built and staffed.

    @Drew

    See above.

    If it were the federal government, I would care, but I do not care what taxes and/or fees Seattle or Chicago impose. For $1,000,000, I could told them that Seattle was a bad idea. I will give you the family and friend discount, and for $750,000, I will tell you where not to locate or purchase any businesses. Here is a freebie – San Francisco.

  • CuriousOnlooker

    While Amazon is the headline, the head tax actually has a very low revenue threshold – 20 million. And since its a head tax, not a payroll tax, it impacts companies that pay lower wages more (think local restaurant chains, supermarkets, retailers) then the white collar Amazon headquarters workforce. The most regrettable thing about a head tax is it is very regressive tax.

    Here’s document about the demographics of Seattle’s homeless. It seems pretty accurate, my only quibble was they did the census in Jan, a census in summer would produce significant differences.

    http://allhomekc.org/wp-content/uploads/2016/11/2017-King-PIT-Count-Comprehensive-Report-FINAL-DRAFT-5.31.17.pdf

    I look at it and its not obvious that money is the determinate factor in this crisis.

  • Here’s a revelant article from the Seattle Times characterizing the companies who fall under the tax. $20 million in revenues isn’t a big company. It’s a small company, just not a mom-and-pop shop.

  • Guarneri

    So as we’ve just learned, “who cares?” I hear they are murdering people in droves in Chicago and Baltimore. But I don’t live there, and if people are so stupid that they do, “who cares?”

  • TastyBits

    @Drew

    … “who cares” … Chicago …

    Let me guess. You left Chicago because you care so much. Honestly, do you just throw shit against the wall and hope something sticks?

    When the Google employees start killing the Amazon employees, I will start caring, but until then, I would suggest that they follow your lead and move.

  • TastyBits

    @steve, @Modulo Myself, @Gustopher

    Make room. Apparently, @Drew (AKA @Guarneri) is a social justice warrior, and he will be manning the barricades shortly.

  • steve

    “I hear they are murdering people in droves in Chicago and Baltimore.”

    They are dying anyway. Ignore them.

    Steve

  • Guarneri

    No, Tasty, I just call out poor thinking. This blog deals extensively with public policy issues. Those issues often apply broadly. One would hope that people would not be so callous and self centered that they are indifferent to policies adversely affecting distant groups, as long as they are OK in their own little world.

    Apparently your worldview dashes that hope.

  • TastyBits

    @Drew

    Spare me the crocodile tears. Do you really believe the bullshit that you throw around?

  • Andy

    I missed that it was based on revenue. That is really dumb.

    The City Council there doesn’t seem too bright. As I was running through the Seattle Times website, I ran across this:

    https://www.seattletimes.com/seattle-news/seattle-returns-to-wells-fargo-no-other-bank-wants-citys-business/

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