Facing Pressure From Amazon, Seattle Repeals 'Head Tax'

City politicians were up against a corporate-funded opposition effort. So they caved.

SEATTLE ― In a 7-2 vote, the Seattle City Council voted to repeal a tax on large corporations to fund affordable housing and homeless services. The council had voted unanimously to pass the tax just over a month ago.

Amid boos, cheers and chanting, three councilmembers who’d voted for the tax ― then voted to repeal it ― told a packed City Hall audience that they had no other option.

Since the Employee Hours Tax passed in May, a coalition of companies led by Amazon and Starbucks have collected more than 40,000 signatures to repeal it. If the City Council hadn’t reversed its decision, a referendum to nullify the tax would have appeared on the ballot in November.

Councilmember Lisa Herbold said she had seen polls indicating that the “vast majority” of Seattleites would support repealing the tax.

“We don’t have the time or the resources to change enough minds before the referendum in November,” Herbold said after more than an hour of often-heated public comment. “It’s not a winnable battle.”

A Compromise Bill

The Employee Hours Tax, also known as the “head tax,” was never anyone’s idea of a perfect policy. According to the Institute on Taxation and Economic Policy’s Tax Inequality Index, Washington state has the country’s most regressive tax code in the country, and Seattle the most regressive code within the state. The state constitution bars passing a personal income tax (Washington is one of the few states without one). Thanks to a 2001 ballot referendum, the city’s property tax revenues can’t grow more than 1 percent per year without explicit approval from voters. All of the obvious fixes are impossible.

But even greater than Seattle’s challenge of taxation is its crisis of homelessness. Since 2010, as Amazon has expanded and the population has boomed, the city’s housing supply hasn’t kept up. As rents and evictions have increased, the homeless population has risen to more than 12,000 people. A McKinsey study published in May — the same week the Employee Hours Tax passed — estimated that Seattle and King County, where the city is located, would need to spend at least $200 million more per year to solve its homelessness crisis.

That was the bind — growing inequality and strained social services — the City Council was trying to address with the head tax. The original proposal was bold: It was going to charge large corporations $520 per year for every worker they employed in Seattle. In 2021, the flat fee would become a payroll tax of .7 percent, which would hit companies like Amazon, which employs thousands of high-wage workers in Seattle, even harder.

During the debate that followed, Seattle Mayor Jenny Durkan indicated that she would veto the version of the bill with the payroll tax. Instead, the city passed a version with a more modest fee per employee ($275) and a sunset clause that would end the tax entirely after five years. Rather than raise the originally proposed $75 million to address homelessness, the final version would raise a little under $50 million.

In the end, the tax the City Council passed and the mayor signed was modest. The fee it levied was small, it would only be charged to large corporations and it would disappear after five years. Seattle would remain a relatively low-tax city with a growing tech sector and a booming population. Amazon, in the month after it threatened to move 7,000 jobs to other cities, was still advertising more than 1,000 openings here.

The entire purpose of the compromise was to lower the temperature of the debate. Instead, after the tax passed, it got worse.

Kadee Ingram, 28, holds her son Sean, 2, at SHARE/WHEEL Tent City 3 outside Seattle. The Employee Hours Tax would have provided just under $50 million in funding to fight homelessness.
Kadee Ingram, 28, holds her son Sean, 2, at SHARE/WHEEL Tent City 3 outside Seattle. The Employee Hours Tax would have provided just under $50 million in funding to fight homelessness.
Shannon Stapleton/Reuters

Heated Rhetoric And Fudged Facts

The Employee Hours Tax passed on Monday, May 14. By Friday of that week, corporations had raised more than $300,000 backing an effort to kill it. Less than two weeks later, canvassers were posted outside grocery stores and cafes, telling pedestrians that the new tax would cost them more money (it wouldn’t — only corporations would pay the tax) and that it would cut into the profits of small businesses (also false — it only applied to companies with revenues over $20 million).

Rhetoric about the tax grew increasingly overheated. Starbucks issued a statement saying that “This City continues to spend without reforming and fail without accountability.” A Seattle Times columnist characterized supporters of the tax as “the activist elite.” A shoving match broke out at a Trader Joe’s between supporters and opponents of the tax.

Many of the arguments against the tax sounded reasonable. Opponents said they preferred a “regional approach” to homelessness, a benign-sounding argument that ignores King County’s years of stalled efforts to fight homelessness. They also cited a 2016 report that found the city’s homeless services were inefficient and diffuse, but ignored that the bulk of the Employee Hours Tax would fund housing, not services.

There was even a mini-fake news scandal. A Seattle real estate developer wrote a Forbes column claiming that the McKinsey report estimating the costs of homelessness didn’t exist. This was false in the narrow sense (the report does exist) and in the broad sense (city councilmembers publicly supported the tax weeks before they even knew the report existed), but it didn’t matter.

The fudged facts, combined with the inflated rhetoric, created a narrative in which the City Council, blinded by ideology and contradicted by reality, was deliberately taxing away all of Seattle’s jobs.

Gilded Age-Level Income Inequality

It’s rare for politicians to be so transparent about the calculus they’re making. On Monday night, city councilmember Mike O’Brien told The Stranger, “We know the campaign on the other side would raise however many million dollars they need.”

Herbold claimed that business interests had already managed to convince Seattleites that “increased levels of human suffering” were “caused by government inefficiency rather than by the Gilded Age level income inequality.” Better to repeal the tax now, Herbold argued, than lose publicly and endure six months of well-funded campaign rhetoric against the tax.

Whether she’s right or not, the repeal is unlikely to appease either side of the debate. At the City Council hearing on Tuesday, supporters of the tax called councilmembers cowards for repealing it. Opponents of the tax called them irresponsible for passing it in the first place. As councilmembers left the chambers after voting to repeal the tax, pro- and anti-tax activists chanted, “Vote them out!

But the overall lesson from this fight extends beyond Seattle. The vast majority of Americans tell pollsters they believe income inequality is a problem and that they support efforts to fix it. What Seattle has learned in the last month is that these beliefs may be more complicated than they appear.

As Herbold points out, a network of companies tried to convince millions of self-identified progressives that a modest, temporary tax on large corporations to help poor people was government overreach. And they won.

Similar efforts in other places will encounter the same opposition, the same well-funded misinformation campaigns, the same expansion of technicalities (“a regional approach”) into deal-breakers. It’s easy to support improving the country. It’s harder to live with the compromises and imperfections that get us there.

CORRECTION: A previous version of this story indicated that a Seattle ballot referendum mandated the city’s revenues cannot grow more than 1 percent per year without explicit approval from voters. In fact, that limit is on the city’s property tax revenues.

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