Seattle’s New Business Head Tax Law is Deeply Unpopular

May 18, 2018

The best that can be said for the Seattle City Council’s embrace of a $275 per-employee business head tax is that at least it isn’t $500 a head, as originally planned. Still, the city’s decision to tax employment is being panned all around, and rightly so.

Former Governor Christine Gregoire, a Democrat, blasted the tax, saying, “I firmly believe it is a tax on jobs. I firmly believe it undermines our international and national reputation.”

Mark Mullet, a Democratic state senator from Issaquah, just southeast of Seattle, said that with the tax, Seattle is “sending a message to the rest of the country that we’re going to penalize you for creating jobs here,” and has announced his intention to introduce state legislation to preempt local head taxes. Senate Minority Leader Mark Schoesler, a Republican, is proposing similar legislation. (Senator Schoesler has contended that the head tax is actually inconsistent with existing state law.)

Amazon, one of the city’s largest employers, didn’t mince words, saying in a statement that the new tax leaves the company “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.” Starbucks was similarly outspoken; the company excoriated the Council’s decision, charging that the city “continues to spend without reforming and fail without accountability.”

Supermarkets, which often operate on paper-thin margins, are particularly alarmed. Two Albertsons grocery stores are slated to close due to the high cost of doing business in Seattle. That’s not due to the head tax, but with this new burden, more closures could follow, reducing food access and affordability in low-income communities.

The Seattle Times, which has editorialized against the tax, has called for a citizen ballot initiative to overturn it. That’s a heavy lift, as getting it on the ballot this fall would require gathering 21,770 signatures by early July, but that the city’s paper of record would even suggest it is remarkable. A recent poll, moreover, suggests that such an initiative would have a chance: voters disapprove of the head tax, 54 to 38 percent. The proposal is underwater across all subsets polled: age, income, and party affiliation.

Even proponents of the new tax, like Matt Gardner and Jared Bernstein of the Center for Budget and Policy Priorities, haven’t been entirely enthusiastic about its structure, but have defended it on the grounds that Washington lacks some of the tax options available in other states, most notably income taxes. This, however, misses a key point: while states often have broader tax authority than is available in Washington, localities do not, particularly where business taxes are concerned.

Seattle is one of the few large cities in the country to impose a major business tax, the local Business & Occupation (B&O) gross receipts tax. In most other states, localities have no option to impose either a corporate income or gross receipts tax on businesses. The combination of a major business tax and an employee head tax seems to be completely unique to Seattle—and not in a good way.

That’s why there’s been such broad bipartisan opposition to the head tax. It’s why Mayor Jenny Durkan (D) worked to bring the rate down from $500. And it’s why the story may not be over.

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