Business Head Taxes Take Aim at Having “Too Many Good Jobs”

May 22, 2018

The quintessential mayoral photo-op is the ribbon cutting, where city executives demonstrate (1) that they can bring good jobs to their city and (2) they know a supplier of abnormally large scissors. Which is why it’s shocking to hear any mayor complain of “too many good jobs.” If there’s an article of faith among mayors, it’s that you can never have too many good jobs.

Yet that’s what Mountain View, California, mayor Lenny Siegel (D) said, contending that his community has “too many good jobs” and not enough transit. Now, in fairness, one doubts that his real complaint is the jobs but rather the perceived mismatch. The emphasis, though, is telling in light of his proposed solution: a business head tax like the one just adopted, over loud objections, in Seattle.

Because if your concern is that there are too many good jobs, a literal tax on jobs is certainly one solution.

Mountain View, home of Alphabet (Google’s parent company), is not alone. Cupertino, California, where Apple is headquartered, is exploring a business head tax too. Clearly, these proposals target the tech sector, coming as they do in the hometowns of Alphabet, Apple, and Amazon. But while these taxes may target the As, their impact runs from A to Z.

(And I’m not just talking about the Seattle-based Zillow.)

In Cupertino, Mayor Barry Chang (D) wants to charge large businesses $1,000 per employee. To his credit, he does not insist that this is a small amount or that it won’t have employment consequences. Of Apple, he says, “If they leave, it will have a great impact to the city, no doubt about it,” but “[i]f that happens, something better may come up.”

You’d need an awful lot of ribbon cuttings to replace Apple, which is responsible for over two-thirds of all jobs within city limits with the completion of the company’s new headquarters.

But “something better may come up.”

Even at $1,000 a head, it’s unlikely that Apple would decamp from its new “spaceship” headquarters. But tech jobs are incredibly mobile, and the company is locating additional facilities across the country. In fact, Apple is quietly searching for a location for a new 20,000-employee campus, and is opening smaller facilities nationwide.

Will Apple decamp from Cupertino over a $1,000 a head tax on employment? Probably not. Could the number of jobs Apple creates in Cupertino, as opposed to its other facilities (or even whether it transfers some jobs from Cupertino to some other location), depend on what the city does? Absolutely.

Google, meanwhile, has sizable offices in: Ann Arbor, Michigan; Atlanta; Austin, Texas; Boulder, Colorado; Cambridge, Massachusetts; Chicago; Irvine, California; New York City; Northern Virginia; Pittsburgh; Seattle; and elsewhere. What percentage of the company’s workforce is based in Mountain View is certainly flexible.

As business owners in Seattle have noted, moreover, the impact extends far beyond the largest employers. Not only do thresholds often capture low-margin businesses like supermarkets, but even small companies can take a big hit if major employers reduce their footprint. That’s particularly true of suppliers or other complementary companies, or smaller tech companies that locate in these high-cost areas to take advantage of the benefits of “tech agglomeration.”

Plus, if revenues are tight now, imagine what they could be if employment declines.

The issue here is not whether these communities have made adequate investment in transit. Certainly, moreover, large employers can place a strain on localities, particularly if many of their employees commute in from out of town. How a city raises additional revenue, though, matters. Whatever you tax, you get less of. Levying a new tax on, quite literally, employing people, is the wrong strategy. Contrary to the mayor’s contention, prosperity is not a “peril,” and this is not how you contend with whatever challenges prosperity creates.

It may be true that Mountain View has more good jobs than its infrastructure can sustain. But there are two solutions to that problem: one is to build up the infrastructure; the other is to drive out the jobs. Certainly, the city’s hope is to raise additional dollars for infrastructure. But there are better ways to do that than deriving the new revenue from a direct penalty on jobs.

Was this page helpful to you?

No

Thank you!

The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?

Contribute to the Tax Foundation

Related Articles