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10 reasons to say No to current payroll tax proposal

Councilmembers Sawant and Morales recently proposed a larger version of their payroll tax (Council Bills 119772, 119773, 119774). I’ve heard from thousands of Seattle residents on various sides of this challenging issue.  Giving voice to many of the concerns expressed by constituents as well as my experience in both government budgeting and private sector financial analysis, I co-authored with a local economist an Op Ed published in the Seattle Times. Here is the link to the Op Ed and I also paste it below for your convenience: https://www.seattletimes.com/opinion/10-reasons-to-say-no-to-the-job-killing-sawant-tax/

My Op Ed published in Seattle Times, April 21, 2020:

As Seattle responds to the COVID-19 public-health crisis, we are already suffering from its fallout: An economic crisis the scale of which we haven’t seen in our lifetimes. Seattle employers are laying off thousands of our neighbors. We believe that the public officials in charge of city finances should embrace the mantra of front-line medical professionals: Do no further harm. Unfortunately, Councilmember Kshama Sawant is revisiting and expanding a controversial tax proposal that we believe would further harm Seattle.

Here’s how:

  1. new tax during a recession is bad economics. Employers are shedding jobs at an unprecedented rate. Seattle’s labor market is on life support, and the final scale of the problem remains unknown. It’s a basic economic principle that governments cannot tax their way out of recessions, especially if the key to revitalizing the local economy is to encourage employers to rehire workers.
  2. It’s the “Bellevue Relocation Act”: Thanks to the heroic work of state Rep. Nicole Macri, D-Seattle, Olympia nearly passed a smart bill to raise revenue from local businesses. It was smart because regional problems require regional solutions. Under House Bill 2907, businesses in Seattle would have paid the same tax in Bellevue, whereas the Sawant Tax only targets businesses in Seattle. Imposing a new tax only in Seattle incentivizes employers to relocate or start up anywhere but Seattle.
  3. It’s false advertising. Journalists, public officials and advocates should stop calling the Sawant Tax an “Amazon Tax” because that fails to acknowledge the additional 799 businesses ensnared by this job-killing employer payroll tax. For-profit employers with annual payrolls exceeding $7 million would be subject to this new Seattle tax that would collect an estimated $500 million a year — this is 10 times more than the “Head Tax” which was canceled during healthier economic times only two years ago.
  4. It fails to analyze consequences. How many Seattle employers targeted by this tax are currently bleeding jobs or facing bankruptcy? How many are donating millions to charities or, like the Polyclinic, providing medical care on the front lines of the COVID-19 crisis? Will Councilmember Sawant’s proposal to provide one-time cash payments disqualify some low-income families from accessing state or federal social-service programs that have strict income limits?
  5. It uses COVID-19 as cover. Councilmember Sawant has been pursuing this tax for years, so it seems disingenuous to link it to the pandemic. While taxes or fees targeting profitable businesses have merit during normal times because of the limited tools of our regressive state tax system, the Sawant Tax is misleadingly labeled as an “emergency” when, in fact, her tax would never end.
  6. There are strong relief packages from federal and state governments and Seattle City Hall. All levels of government are providing multiple financial-relief packages with fiscal support totaling more than $2 trillion and likely to increase. As detailed by The Seattle Times, the boost in assistance is substantial for those who became unemployed due to COVID-19.
  7. Interfund loans are risky. Councilmember Sawant’s tax would borrow $200 million from other programs, such as education, affordable housing, transportation and parks, with a risky promise — that these programs will be paid back by new tax revenues — even though the tax could ultimately be overturned by the courts.
  8. It wastes money. The cost to administer this new tax is a whopping $100 million in the first five years. For perspective, that’s how much City Hall currently spends on its homelessness programs in one year.
  9. State legislators can do more. The pandemic has underlined a compelling rationale for our legislators in Olympia to craft additional regional tools for progressive sources of revenue.
  10. There’s a fiscally responsible way to close our city’s deficit. City Hall faces a shortfall currently estimated at about $200 million for its $6.5 billion budget (including its $1.5 billion General Fund). To close the gap, City Hall can tap into its two emergency funds of $120 million, trim at least 10% of its General Fund (in part by removing pay raises for the highest-paid government workers) and deploy relief funds from the federal government, which include clean-energy programs to improve our environment. To accelerate vital infrastructure projects like the West Seattle Bridge, we can redirect funds away from money-losing projects like the Center City Connector streetcar through downtown.

Until Seattle’s economy fully recovers, the City Council should reject the Sawant Tax — or Mayor Jenny Durkan should veto it. We urge Seattle residents to email their thoughts to: council@seattle.gov and jenny.durkan@seattle.gov.

Alex Pedersen is a Seattle City Councilmember representing District 4, which includes many Northeast Seattle neighborhoods and Eastlake.

Matthew Gardner serves on Gov. Jay Inslee’s Council of Economic Advisers and is the chief economist for Windermere Real Estate.

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