Seattle Residents Challenge New Jobs Tax

Published June 11, 2018

Residents of Seattle, Washington are collecting signatures to place a referendum question asking voters to repeal a recently approved tax on local businesses earning more than $20 million a year.

During a June 5 public event, Seattle Metropolitan Chamber of Commerce Chief Executive Officer Marilyn Strickland predicted the No Tax on Jobs campaign would succeed in collecting 17,632 valid signatures by June 15, the deadline for putting the question on the November 2018 ballot.

“There will be something on the ballot in November,” Strickland said.

Seattle Mayor Jenny Durkan signed Ordinance 119250 into law in May 2018, charging a levy of $275 per individual employed by companies with annual revenue exceeding $20 million. Proponents of the jobs tax promised the revenue would be used to fund local anti-poverty efforts.

‘Not Friendly to Job-Creators’

Joe Cobb, a former senior fellow in economics at the Heritage Foundation and current policy advisor for The Heartland Institute, which publishes Budget & Tax News, says the jobs tax is already causing local businesses to eye the exits.

“The employment tax will set businesses thinking how to get out of there, instead of growing locally.” Cobb said. “Amazon is already showing this behavior. Amazon is closing a Seattle fulfillment center and relocating to Phoenix.”

Paul Guppy, vice-president for research at the Washington Policy Center, says the jobs tax will cause other business owners to avoid or leave the city as well.

“Over time, the tax will discourage opportunity and job creation in Seattle,” Guppy said. “Larger firms will locate new business elsewhere, as Amazon is already doing, and all employers will worry about what new taxes and restrictions Seattle may impose in the future,” Guppy said. “Basically, the head tax sends a signal that Seattle is not friendly to job-creators and has a political dynamic that is hostile to business owners, investors, and innovators.”

Explains Effects on Staffing Decisions

Guppy says the jobs tax will have a disproportionate impact on lower-paid employees.

“As a flat head tax, the policy takes no account of an employer’s net profit margins or an employee’s salary level,” Guppy said. “Supermarket owners have pointed out that their profit margins are very thin, only 2 or 3 percent, so the tax will hit them hard. Also, the tax targets low-income workers, because a $275 tax a year makes up a much larger proportion of [the salary of] a lower-paid worker than the salary of a higher-paid worker.

“The result is that it would cost a law firm, for example, much more, proportionately, to hire an office assistant than to hire a new lawyer,” Guppy said. “The Seattle head tax would make up only a small percentage of the lawyer’s salary, but the tax penalty, in percentage terms, would be much greater for hiring an office assistant.”

Expects Strong Backlash

Cobb says revenue from the jobs tax will eventually dry up as businesses leave the city.

“In the longer term, the entrepreneurs and managers will find alternatives to living in and having employees working in Seattle,” Cobb said. “The city treasurer will see the revenue come in the first year and gradually decline year after year as entrepreneurs and other larger employers evacuate the People’s Republic of Seattle.”

Cobb says business owners are not sheep who will placidly wait to be shorn by the government.

“In the beginning, this tax will be an ‘inframarginal’ tax,” Cobb said. “It will not affect any short-term decisions of anybody. It will be simply calculated from total payroll by the victim—employers—and remitted.

“But those victims will not sit still,” Cobb said. “They will engage in more active local politics, state politics, and federal politics to fight this kind of plunder. The increase in government taxes and regulations will inspire the victims to fight back.”

‘Don’t Come to Seattle’

Guppy says the jobs tax may be a simple cash grab, but business owners will ultimately take that cash out of the city government’ reach.

“City Council members want to get as much money as they can with as little public resistance as possible,” Guppy said. “The head tax sends a message to entrepreneurs that says ‘Don’t come to Seattle.'”