President's Column

Thursday, June 7

The whole state is watching Seattle's head tax debate

As the City of Seattle moves ahead with a plan to tax employers $275 per year per employee, the rest of the state is watching with a mix of disbelief, unease and even a little opportunism.

The disbelief comes out during conversations I’ve had with employers throughout the state and often comes back to a single question: What are they thinking?

The idea of levying a tax on job creators seems so obviously counterproductive that people are left shaking their heads. The companies targeted by the new tax are the same companies that have fueled Seattle’s economic expansion. As The Seattle Times reported, these businesses now employ roughly 150,000 people in the city, across industry sectors, and generate most of the of city’s discretionary revenue.

In other parts of the state, where the economic boom times have not yet arrived, local leaders would be overjoyed to see even a portion of Seattle’s growth. They’re looking for ways to encourage growth, not penalize it.

There is also a sense of unease. If the Seattle economy cools as result of a head tax, how will it impact the statewide economy?

“If there is someone who wants to move within the region, our doors are certainly open to them in Bellevue but … we want to make sure that we show that the Puget Sound region has a really strong economic climate,” Bellevue Major John Chelminiak told the tech news website GeekWire.

And we know that ideas that start in Seattle sometimes make their way to the rest of the state.

The most optimistic view of the head tax may be coming from places like Tacoma and Spokane, which quickly mobilized campaigns to attract businesses to their communities.

Shortly after the Seattle council vote, the Tacoma-Pierce Chamber of Commerce released a video announcing “No Head Tax Here,” tying into a broader campaign touting the South Sound as “The Place for Jobs.”

A Pierce County coalition followed suit with an offer to pay employers $275 — the same amount Seattle plans to levy in taxes — for each new job created.

And Spokane Mayor David Condon said his city is contributing to a marketing campaign aimed at attracting businesses and professionals. It’s part of a larger effort to reach out to businesses in Western Washington.

In Seattle, opponents of the tax are fighting back. A coalition of employers launched a referendum campaign shortly after the council vote. They have until June 15 to gather 17,632 valid signatures to put a referendum on the November ballot.

And in the Legislature, Sen. Mark Schoesler, R-Ritzville, is proposing a bill banning cities from imposing a tax based on employee head count, wages or hours worked. Sen. Mark Mullet, D-Issaquah, said he plans to introduce legislation that would stop cities from implementing both a head tax and a business and occupation tax.

Lawmakers will take up the bills during the 2019 legislative session, a session that was already expected to be largely about taxes, including another push for a capital gains tax.

They share some features. The head tax is purportedly aimed at large tech companies but would in fact hit nearly 600 companies across all industry sectors. Likewise, the capital gains tax is purportedly aimed at the wealthy but would also hit small-business owners who are relying on the sale of their business to help fund their retirement.

And both taxes are being proposed at a time when tax revenue is growing. Seattle has record revenues, and the state budget has grown from $30.4 billion in 2009-11 to nearly $44 billion in the current biennium.

There are challenges that need addressing in Seattle and throughout the state. But with tax revenue growing at the current rate, it’s doubtful that more taxes will solve them. The better solution is to grow the economy and encourage job creation, which will continue expanding the tax base.

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