How Seattle’s Economic Illiteracy Kills Jobs

Seattle is worried about the well-being of the poor and mentally ill people living there, so it’s going to drive businesses out of town.

OK, that’s not how the politicians describe their plan, but that’s probably how it will work out.

Members of Seattle’s city council want all big Seattle businesses to pay a tax of $ 500 per employee.

In response, Amazon stopped building a new complex. Construction workers joined Amazon in protesting the new tax.

On the other side are city council members like Kshama Sawant. She and members of her political party, Socialist Alternative, demonstrated in support of the tax. They chanted, “Housing is a human right!”

Seattle does have large encampments of street people. Some are mentally ill. Some are young people looking to get stoned and live free. Some are homeless simply because they cannot afford apartments. There are many reasons for that, but one is that Amazon and other companies have brought so many new jobs to Seattle that the demand for housing exceeds the supply.

Normally, when that happens, the free market quickly solves the problem. Builders view the rising prices as a wonderful thing. They quickly build new housing to sell to the new customers. But in Seattle, and many towns in America, politicians make that very hard.

Seattle’s building code is 745 pages long.

If you want to build apartments, you better hire lawyers and “fixers” to keep you on the right side of the rules.

Seattle’s rules insist that “Welded splices shall be of ASTM A706 steel” and “foam plastic signs shall not be greater than 1/2 inch” thick.

On the majority of Seattle’s land, building any high-rise is illegal; zoning rules say only single-family houses may be built.

Want to run a cheap flophouse with single rooms? Seattle’s rules make that just about impossible.

Finally, if a landlord decides to take a building off the market, he must pay each of his tenants $ 3,000 in relocation costs.

No wonder there’s a housing shortage.

Seattle’s big-government restrictions created a housing problem. So now they propose to solve it with more heavy-handed government.

Seattle promises its new per-employee tax will only hit “big” companies, those grossing more than $ 20 million per year (about 3 percent of Seattle’s businesses).

Don’t the politicians realize that many growing companies will simply stop expanding when they get close to $ 20 million in income, just as companies, looking to escape Obamacare, avoid employing more than 49 workers?

Some pay lawyers to split the company into pieces. Some expand in another state. Don’t politicians see that raising taxes has nasty side effects? I guess not.

Monday, after Amazon’s pushback, the city council imposed a tax of $ 275 per worker instead of the originally proposed $ 500 tax.

They called that “compromise,” but it sounds like replacing a bad plan with a half-as-bad plan.

It’s not only government bureaucrats who are to blame. The consulting firm McKinsey weighed in with an analysis of Seattle-area homelessness and concluded the city needed to spend $ 400 million a year to solve the homelessness problem.

I’m sure Seattle, and many other governments, will manage to spend $ 400 million without solving the problem.

It’s good that Amazon pushed back against the tax. Their reminder that they could reduce or close up business if Seattle’s government got too greedy helped cut the tax roughly in half.

You can’t just keep squeezing businesses or other taxpayers forever and not expect them to try to escape. At some point, businesses will pack up and leave. Then there will be fewer paying jobs that make a city’s population less likely to be homeless in the first place.

Sawant and the other big-taxers try to make productive companies, which employ people so they can afford things like rent, sound like villains. She called Amazon’s threat to leave “extortion.” The activist group Working Washington asked Seattle’s attorney general to charge Amazon with the crime of “issuing mob-like threats.”

Mob-like threats? Amazon just wants to be left alone so it can build complexes, hire people, and sell stuff.

As usual, government is the organization that sounds mob-like.


Seattle’s Idiotic Tax on Amazon

The tyranny of local government was on full display this week. The culprits are some greedy members of the Seattle City Council. Backed by their union friends, they just voted to impose a “head tax” on large employers, such as Amazon and Starbucks. The real victims, of course, will be the companies’ employees.

Thanks to Seattle’s many thriving businesses, its revenue base has been growing much faster than its population. Unfortunately, the City Council is doing what it does best and, rather than look into streamlining and cutting its ineffective spending programs in order to combat Seattle’s homeless problem, is looking for fresh cash. Seeing as large companies have it, the council set out to take it.

The result is the so-called head tax on Seattle businesses that gross at least $ 20 million annually. According to The Seattle Times, 585 businesses in the city will be subject to the tax. Not surprisingly, the tech giant Amazon is expected to pay the most under the tax. The initial proposal was for a $ 500 tax per employee, which, in Amazon’s case, would have meant an added $ 20 million in labor costs. Thanks to a veto threat from the mayor, the council reduced its tax grab to $ 275 per employee.

When the tax was initially proposed, the company announced that under those circumstances, it was going to pause construction planning for a new giant office tower on its new downtown campus. If you employed 40,000 people and realized that you might always be the target of revenue-addicted bureaucrats, you might do the same. But those who constantly lust over other people’s money have no shame. A union-backed activist group named Working Washington immediately called for—wait for it—Amazon to be charged with a felony for the crime of “intimidating a public servant.” Simply questioning whether its business expansion in Seattle would be a good idea in the face of an arbitrary and substantial increase of its labor costs was the alleged crime.

Of course, what Amazon did is no different from what many taxpayers do when taxes increase to cover poor money management. I, for instance, am in the process of deciding whether I really want to continue offering my home through Airbnb now that Arlington County, Virginia, requires a business license to rent a room in one’s own home, a 7.25 percent tax and filing a monthly tax return for the unit.

Thank goodness, in Seattle, the state’s attorney general stepped in and informed everyone that no crime had been committed and no legal action would be taken. Basically, it isn’t illegal yet in Seattle to contemplate the best path for your business when the taxman comes after you. But a statement by a Working Washington spokesman should trouble the company, as it’s an indication that this is only the beginning. It reads: “It is extraordinary that Amazon’s subprime mob boss behavior was so brutal it ignited a citywide debate over whether it was actually criminal. All that because the richest man in the world wants to try to avoid stepping up to address our city’s homelessness crisis.”

There’s no point talking about all the ways that statement is shocking and over-the-top scary. But it’s worth noting that Amazon does its share when it comes to filling the Seattle treasury’s coffers through its business and sales taxes, the income taxes paid by its 40,000 employees (up from 5,000 in 2010) and the real estate taxes they all pay. And never mind that Amazon has donated half of a six-story building to a homeless shelter, according to The New York Times, “providing it with 47,000 square feet of space with private rooms that can hold 65 families, or about 220 people and their pets.”

Besides, this head tax won’t be paid by Amazon. Companies don’t pay taxes. People ultimately pay taxes. That means that this tax will come out of the wages of future employees, the bonuses and wage growth of current employees, the dividends of shareholders, and the pockets of customers, who will face higher prices. It could also lead to the longer-term decision by Amazon to shrink its Seattle operation for the benefit of its second headquarters, the location of which is still being decided. Other cities should take note. Don’t repeat Seattle’s mistake.


Seattle’s Proposed Employment Tax is Just the City’s Latest Self-Inflicted Wound

As self-inflicted wounds go, Seattle officials seem to have stumbled on a winning formula for tanking their city’s economy and their constituents’ prosperity. All it takes is a deep antipathy for the laws of economics and a series of policies based on the same, culminating in a proposed tax on hours worked by the employees of large companies to fund social programs that are making little if any headway in their supposed missions.

“An employee hours tax is hereby levied upon and shall be collected from every person for the act or privilege of engaging in business activities within the City,” reads the tax bill, which appears to have four of the necessary five city council votes locked up. “The tax shall be measured by the number of employee hours of work conducted within the City during each quarter of the calendar year.”

Every hour worked will bring in $ 0.26 from large employers with revenues of more than $ 20 million, for a grand total expected to tally up to between $ 25 million and $ 75 million. The bulk of that take is earmarked for the city’s years-long campaign against homelessness.

Why the wide range for projected revenue? Well, predicting economic activity is an inexact science at best—especially when the companies you’re planning to soak threaten to go elsewhere and take their jobs with them. Specifically, in response to the proposed employment tax, Amazon paused construction on a downtown office tower and may sublease space in another building rather than use the space itself.

“The company helmed by Jeff Bezos has planned to fill its 17-story ‘Block 18’ tower and the skyscraper being built at Rainier Square with an estimated 7,000 to 8,000 workers,” the Seattle Times reported.

“Jeff Bezos is a bully,” the city council’s resident overt socialist, Kshama Sawant, huffed in response.

But it’s not as if Seattle officials had no warning that Amazon was unhappy with the city’s anti-business rhetoric and its intrusive policies which include high taxes, a soaring minimum wage, a nanny-ish sugar tax, and expensive labor mandates. In setting the expectations for a second headquarters—HQ2—Amazon specified that it was looking for “a stable and business-friendly environment.” Seattle city council members responded just last October with a letter pleading, “[t] o the extent that this decision was based on Amazon feeling unwelcome in Seattle, or not being included in some of our regional decisions, we would like to hit the refresh button.”

And they had good reason to plead. In 2015, the city’s budget department attributed 43 percent of jobs created in the post-Great Recession recovery to Amazon and Boeing, directly and also indirectly through secondary and tertiary effects.

Maybe, just maybe, employers and workers targeted by the proposed employee hours tax might be less resistant to being soaked if the money wasn’t so likely to be unproductively pissed away while homelessness continues to worsen. But this week Seattle residents learned that “KOMO News has obtained an unpublished report that shows how the city spent more than $ 53 million on the homeless in 2017. Although millions have been spent, Seattle’s homeless population continues to rise.”

Apparently, $ 20 million of the money went to emergency and shelter services, and “only six percent of people who use those services were able to find permanent housing.”

The Associated Press noted last year that “while homelessness has decreased nationwide and in many cities, the problem has grown in others, such as Seattle. In 2016, a one-night homeless count found nearly 3,000 people living outside in this city of about 650,000, marking the fourth straight year of increases.”

Even before that, in 2015, the local NPR affiliate found that the city’s 10-year plan to end homelessness was doing nothing of the sort. “[T]he 10-year plan is ending and local homelessness is worse than ever” even though “[t]he ranks of the homeless have declined in Washington state and nationally during that time.”

Then again, part of that homelessness is due to high housing costs fueled by demand from highly paid employees of the sort of large companies targeted by the employee hours tax. Building takes time, so supply can’t immediately catch up to demand—especially when real estate development is regulated by the same city officials doing their best to alienate the city’s large employers. Among other rules, Seattle mandates a minimum number of parking spaces be included in residential construction, and also mandates that developers either include low-cost housing in their plans or else contribute to a housing fund—measures that raise costs.

So chasing big employers out of the city would certainly reduce the demand driving rising housing costs. But that sort of gut-punch to the economy might not be a “solution” that Seattle residents ultimate appreciate.

Of course, Seattle isn’t the only city to try to cripple itself with taxes and regulations. Cities across the country have been hiking minimum wages—an issue on which Seattle is a leader. That’s unfortunate, given the negative impact researchers find the requirement has had on employment there. And Seattle’s real estate red tape has yet to reach the heights of complexity and corruption that, in New York City, requires an industry of middle-men “expediters” to navigate—and has trashed the construction of new housing in San Francisco.

Nobody doubts that in its search for an HQ2 location, Amazon wants a more business-friendly environment. Some cities are basing their pitches on exactly that assumption (they’re also being warned to focus on the tax and regulatory environment, rather than expensive bribes to the company). Locales that want healthy economies will be well-advised to avoid emulating Seattle’s mistake of abusing the businesses that help to create prosperity.