Seattle's tax test: big employers and the social costs of wealth

Dozens of US cities have been courting Amazon as a job-creating tenant, but Cooper Moore has a different viewpoint, having watched how the retail giant has changed his home city of Seattle.

“If a company comes in and disrupts the livability of the city, then a responsible government looks to that entity to provide a solution,” says Mr. Moore, who works at a YMCA and is concerned about Seattle’s high number of homeless residents.

The Seattle City Council essentially agreed – until this week, that is.

It’s a tale with cautionary lessons for cities around the country. In May, the council passed a tax on large employers – those with annual revenue above $20 million – and asked them to pay a $275-per-employee “head tax” to help finance solutions for homelessness.

But amid rising opposition, not just from the companies but from residents concerned about the negative signaling of a “tax on jobs,” council members voted 7-to-2 Tuesday to reverse their decision and abandon the per-employee tax.

Nevertheless, Seattle and other vibrant metro areas still face a conundrum: The very success in creating wealth that comes with high-paying jobs can also widen income gaps and deepen costly social challenges.

In Silicon Valley, some cities are considering similar taxes for similar reasons, even as Seattle’s about-face hints at the difficult politics to be navigated.

Before the council members reversed themselves, says Mardig Sheridan, a Seattle management consultant and film producer, “The message they just sent out to the whole country, to businesses, is: If you come here, we’re going to punish you – for hiring people.” 

As a self-described center-left Democrat in this staunchly liberal city, he’s not denying the community’s housing challenge.

“This isn’t about not wanting to help the homeless,” Mr. Sheridan says in his home office. “When you start telling business, ‘The more people you hire, the more we’re gonna tax you,’ it’s absurd.”

Among the observable impacts that successful employers like Amazon have on a community is inflation of the local real estate market. Experts in Seattle calculate that for every $100 that the average rent increases, homelessness rises by 15 percent.

Similar tensions have surfaced in Silicon Valley, where the city council in Google’s home town of Mountain View also supported a head tax on large employers ​– opting to put the idea before voters this fall.

The idea is also being studied by officials, and viewed favorably by voters, in Cupertino, where Apple is based. The prospective tax revenue in those locales would go toward needs including public transportation and affordable housing.

Along with the aversion that can arise to any tax, the proposals raise a pointed issue: Amid America’s array of revenue-raising vehicles, should some be based on a corporation’s size or success?

It’s a debate marked by two opposing values.

On the one hand, some research suggests that income inequality has risen as workers throughout the economy increasingly have been segregated into higher-paid or lower-paid firms. And in places like Seattle, residents see first-hand how some large employers affect land prices and congestion. To many, that argues for some special tax on large or elite firms.

On the other hand, economic development experts caution against such a direct tax on jobs or success, in an era when employers are mobile and revenue arguably can be raised in other ways. Adding to the controversy, the West Coast head-tax proposals have targeted large employers, regardless of whether they’re a high-paying Google or a lower-paying grocery chain like Safeway.

“I support progressive income taxes 100 percent. That to me is the fair way to do it. Individuals wherever they work have to [pay] it,” says Rob Atkinson, president of the Information Technology and Innovation Foundation in Washington, D.C.

More progressive than a “per employee” tax would be a levy on individuals based on income, or on firms based on the dollar value of their payroll.

“Even if you think you should be taxing richer firms, don’t do it on a size basis,” says Mr. Atkinson, co-author of “Big is Beautiful,” a new book arguing that, too often, government policies are stacked against large firms – which are often leaders in innovation and productivity – rather than being size-neutral.

Already, Boeing is one big Seattle-area employer that in recent years chose to disengage from the region of its roots, partly because of the hold that local labor unions had over payroll costs. The relocation of the firm’s headquarters to Chicago was a warning shot to the region.

The Seattle tax would have affected some 500 to 600 large employers here. Amazon, which is looking to make its next big expansion in some other city, has already grown into a dominant presence in Seattle’s downtown.

As Amazon’s payroll has reached an estimated 45,000 new employees here, prices of homes, condos, and rental units, not to mention other services and products, have inflated at rates outpacing other parts of the country.

Illustrating just how dire the housing crisis is nationally, the National Low Income Housing Coalition said in its annual report released Wednesday that someone working a full-time minimum wage job could not afford to rent a modest two-bedroom apartment anywhere in the country.

Moore, the YMCA employee who has more than once found himself homeless and living on the street, says that’s an urgent issue for the city. He now resides in subsidized housing downtown, where his rent is $834 a month, including utilities.

“I’m passionate about this because affordable housing is the ground on which I can build a good life, and I want others to be able to do that, too,” Moore says. Without the tax, he predicts, “we will continue to see a displacement of the working class in this city.”

This facet of Seattle’s housing crisis has led some developers and self-styled “urbanists” to call for a rezoning of the entire city, a controversial plan that would eliminate protections for single-family neighborhoods and encourage higher population density as quaint craftsman bungalows give way to blocky apartment buildings. Currently, however, some 92 percent of new construction falls in the luxury-unit category, with nowhere near enough low-income housing in the pipeline to meet demand.

Sarajane Siegfriedt, a housing activist and retiree, rejects the arguments that the canceled tax would have discouraged hiring, arguing that even lower-margin businesses like grocery chains could have afforded the $275 per worker. “It’s not a tax on jobs. It’s a tax on very large businesses.”

In the shadow of Silicon Valley, John Powell takes a similar view as director of the Haas Institute for a Fair and Inclusive Society, at the University of California, Berkeley.

“I'm not at all anticorporate,” he says. But “there has to be a way of taxing people and corporations who can afford it” in order to meet society’s needs.

“Whether at the city level, the state level, or the federal level, or all of the above, there has to be some mechanism for making sure society is not just for the rich,” says Mr. Powell, pointing in part to recent federal tax cuts on corporations. Businesses rely on public infrastructure like roads and schools for their growth, he notes, and they can also put a strain on that infrastructure in places like Mountain View or Seattle.

Where some say this week’s vote in Seattle showed entrenched corporate influence stopping a good idea, others say the city pulled back from the brink of an unwise tax.

“I imagine that officials in Cupertino and Mountain View and anywhere else considering a tax like this are paying close attention…. Seattle residents seem to get that this is a tax on job creation,” says Jared Walczak, a policy expert at the conservative-leaning Tax Foundation in Washington.

And while aimed only at large companies, that doesn’t mean just the high-paying jobs that have fueled a real estate boom. “It's the same amount whether you are a barista or grocery clerk or a coder, and those very different jobs with very different skill sets,” Mr. Walczak says.

Some experts say the need may not be for taxes first, but for other steps to meet local needs, such as congestion pricing on clogged roadways, or rezoning that does a better job expanding affordable housing.

Seattle has already been trying that as its housing and transportation challenges have grown. But some residents say more needs to be done.

“Seattle has some 11,000 homeless residents, but it also has an abundance of creative, passionate people, as well as some of the world’s most innovative corporations and visionary nonprofits,” says Arlene Plevin, an English professor who commutes by ferry from Seattle to Olympic College in Bremerton. “With those kinds of resources, we ought to be able to solve even this complicated problem of housing people who can’t afford homes.”

Cort Odekirk, who manages a team of software developers at ChangePoint, also wishes to see more collaboration and initiative.

“In a perfect world, those big companies would have said, ‘Oh, we’ve hyper-inflated the economy. We should reach out and come up with some initiatives,’ ” he says. But “I don’t think companies would ever – on their own – fess up and say, ‘We have a homeless problem.’ ”