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“Fair Share” Has Limits, Even in Seattle

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“Fair Share” Has Limits, Even in Seattle

The city proposes an aggressive new business tax, aimed at Amazon—and sparks an unexpected backlash. May 8, 2018
Economy, finance, and budgets
Cities

While cities around the country dangle huge tax incentives at Amazon in an effort to attract its planned new headquarters, the Internet giant’s hometown of Seattle is trying to wallop the company with a $20 million-to-$30 million new tax. The effort is not going well, as the company, construction workers, editorialists, and residents balk at the idea of squeezing more dollars out of Amazon and other big firms in a city with coffers already overflowing with revenues. The uproar might be evidence that the progressive strategy of forcing big businesses to pay their “fair share” has its limits.

Late last month, Seattle’s city council proposed a so-called head tax of 26 cents for every hour worked by each employee at businesses with $20 million or more in revenues. The objective: to raise $75 million annually toward building affordable housing and expanding social services to address what officials say is an explosion of homelessness in the city. Amazon, with some 50,000 workers in Seattle and another 10,000 planned, is the tax’s top target, and it could wind up paying as much as 40 percent of the money that the new levy generates.

But if local leaders thought that the “eat the rich” strategy, as the Seattle Times has branded the proposal, would enjoy popular support, they were wrong. Last week, Amazon put on hold the construction of a new tower in the city for 7,000 more employees; if the city passes the head tax, these new workers will cost the Internet retailer millions. Residents appear sympathetic to Amazon. At a town hall meeting on the proposal, they lambasted city leaders for “lax financial management” of the money that Seattle is already spending on homelessness and for the city’s failure to address the growing number of homeless encampments. A Times editorial observed that the city and county are already spending $200 million a year on homeless services and affordable housing to aid 5,500 people living on the streets and another 6,100 in shelters and transitional housing.

Residents laid the blame for the crisis on city leadership. “Your policies and what we’re doing to this city has unleashed chaos and crime on law-abiding citizens,” one speaker complained. Newspapers further noted that Amazon had already pledged around $10 million toward a homeless shelter to be built in its new tower. The raucous meeting, which one council staffer described as “shocking” in its anger, was only the beginning. Later, when a councilwoman who supports the tax tried to hold a rally outside of Amazon’s headquarters, construction workers crashed the event chanting, “No head tax. No head tax.”

Seattle is one of America’s fastest-growing cities, thanks to Amazon and a few other signature companies. Growth has strained city services but also jolted city revenues in a time when many other American localities have been struggling with slow tax collections. Since 2010, Seattle’s budget has grown by 44 percent, to $5.6 billion. By contrast, a report last year by the National League of Cities noted that many of America’s largest cities had still not fully recovered from the declines in tax revenues that hit them in 2009 and 2010.

Despite the bonanza, Seattle politicians have been talking taxes for the past year. Last year, the city and county mulled a “homelessness” property tax that would have netted an additional $68 million annually. Officials have also considered an increase in the sales tax, and last year they passed an income tax on rich Seattle residents. That tax was struck down last November by a Washington state court because it violated the state’s prohibition against income taxes.

Seattle’s budget strains, however, are more than just the result of its growing economy and homeless problem. Left unsaid, but lurking in the fiscal background, is the city’s deep public-pension problem. Seattle has one of the worst-funded municipal pension systems of any major city, and its annual costs have been rising rapidly—from $40 million to $108 million over the last 10 years. Over the next decade, the city projects that it will have to dedicate about $850 million toward paying off the pension system’s debt—and that’s on top of nearly $600 million that it will cost the city over that same period to fund new pension credits that workers are currently earning.

It’s no accident that the proposed tax targeting Amazon would probably raise just about what Seattle will have to spend bailing out its pension system. Supporters should be honest and call it the “fixing-our-pension-mess” tax.

Steven Malanga is the senior editor of City Journal, the George M. Yeager Fellow at the Manhattan Institute, and the author of Shakedown: The Continuing Conspiracy Against the American Taxpayer.

Photo by Dan Callister/Getty Images

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