Diary

Seattle's Liberal City Council Passed the Head Tax

I acknowledge that adding “liberal” to “Seattle City Council” is redundant. By a 9-0 vote, the Seattle’s left-leaning elected representatives succeeded at taxing Big Business.

After a weekend of high-stakes negotiations between Seattle City Council members and Mayor Jenny Durkan, the council voted unanimously Monday to tax the city’s largest employers to help address homelessness.

Starting next year, the tax will be $275 per employee, per year on for-profit companies that gross at least $20 million per year in the city — down from a $500-per-head proposal that Durkan threatened to veto.

[…]

Under the original proposal, the city would have switched from a head tax to a 0.7 percent payroll tax in 2021 — a change to help low-margin businesses with many modestly paid workers, such as supermarkets. Under the approved ordinance, there will be no payroll tax.

The $47 million per year in additional taxes will be reportedly used for the city’s homeless crisis, and the best argument I’ve heard in favor is that the taxes are really small. What’s more, the council doesn’t really have a plan for the money. It’s like, wow, look at all this cash we got, what do we do now? Just recently, King County (which includes Seattle) commissioned a study from McKinsey & Company, which concluded that the actual cost of addressing the problem is closer to $400 million per year, recommending that 14,000 additional subsidized housing units are necessary to alleviate the crisis, but their work is flawed because the assumptions are static. It assumes that the homeless population won’t increase and, not only that, doesn’t consider the influx of homeless that will likely occur because of the additional 14,000 dwelling units. It also assumes that the homeless will take those units if offered, which is not a guarantee.

The Seattle City Council also made some faulty static assumptions, in my opinion, one of them being that businesses grossing over $20 million per year will continue keep their Seattle payrolls at existing levels and not move employees outside the city. Seattle might get its $275 per head per year, but they risk losing almost $3,500 per household in annual sales taxes if Amazon decides not to hire an additional employee in Seattle, or transfers a Seattle employee to one of over a dozen of other cities where they have a footprint, and that doesn’t count its second headquarters, wherever that may be.

(The city collects almost $1,750 per year on average in sales taxes per capita, and average household size is 2.1.)

The larger problem the council has failed to address, so far, is Seattle’s serious housing shortage, and it’s affecting more than a homeless population. Middle-income residents are priced out of renting and buying, so they move outside the city and contribute to an already-congested traffic mess, and neighborhoods outside the city are also affected. As a favor for a friend, I appraised a split-level beater house in south Everett, built in 1981 and containing around 2,000 square feet. Seven of the eight comparables sold for at or above asking, and the average time on the market was only eleven days. The shortage isn’t just impacting the homeless or poverty-stricken, it’s hitting my double-income friends who can’t afford to get into a basic-shelter single family residence way out in the suburbs.

If the city really wanted to do something useful, they would rezone to allow higher intensities of use and give developers incentives to build more units, a lot more units, even if it puts the brakes on council members’ home values.