The payroll tax proposed by Councilmembers Kshama Sawant and Tammy Morales to the Seattle City Council will be voted on in May. It's expected to be tense. Like, head tax tense. Except multiply that by a factor of "global pandemic" and "total economic upheaval."
Depending on who you talk to, the payroll tax is a salve for the COVID-19 economic crisis. While it won't backfill the city's projected $210 to $300 million budget shortfall, it's designed to put money back into the pockets of those who need it most during the pandemic. In that way, proponents say it can stimulate the economy. Naysayers argue that this tax, a 1.3 percent tax on the payroll of the top 2 percent of businesses, will hinder the recovery of the economy by cutting jobs. Luckily for you, The Stranger got the scoop on both (2!) sides.
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Why a payroll tax?
For Katie Wilson, the general secretary of the Transit Riders Union, responding to the crisis with an austerity budget is not the way to go.
"People can’t pay their rent," Wilson told The Stranger, "small businesses are shutting their doors and may never come back, people need help."
As things stand, the tax money would immediately be used for COVID-19 relief. If the current tax gets approved by the council next month, the first priority will be sending low-income families and people disproportionately impacted by COVID-19 emergency cash assistance. Through interfund loans, the council would raise $200 million to give 1,0000 people in need $2,000 each, spread across four months.
After 2020, once the tax is put in place, it is expected to raise $500 million annually. Those funds would go toward building affordable housing units and implementing green infrastructure like constructing electric-only buildings and weaning old buildings off fossil fuel.
"There is a really important role for local government, in particular, to step in and help people," Misha Werschkul, the executive director of the Washington State Budget and Policy Center, told The Stranger. She referenced that the Edmonds City Council was considering a similar cash assistance program. Austin's council, notably, approved $15 million for cash assistance earlier this month.
Supporters agree that a business payroll tax is necessary right now. However, it remains to be seen whether this business tax will pass. In order to get it enacted quickly, the tax includes an emergency clause that requires seven out of nine council members to pass it (one council member is already a pretty secure "no" vote) and the mayor's signature. She's not the tax's biggest fan.
One of the complicated parts of the current tax, though, is that it won't go into effect until 2022. Businesses will start accruing taxes once the legislation is in place but won't owe money until two years from now. It also will tax businesses that reported $7 million or more the year prior. This is cause for concern for businesses that may have had successful 2019s but might be shit outta luck (technical term) in 2020.
"This is bad policy"
Jon Scholes, the president and CEO of the Downtown Seattle Association, is puzzled why the city "is even talking about this again," he told The Stranger, citing 2018's head tax.
"We thought it was bad policy two years ago," Scholes said, "We think it’s bad policy today but this time the tax is 10 times bigger and the economy might be 1,000 times worse. We think this would have really devastating implications for businesses of all sizes and across the city."
In 2018, the head tax was a flat $500 fee per employee for all companies making $20 million annually. The payroll tax, according to Wilson, is more progressive because "effectively a business that can afford to pay someone $200,000 annually is paying more per employee than a business that pays its employees $30,000 a year."
Around 800 businesses would have to pay the payroll tax.
"It's not what companies in our city need to get our economy in Seattle going again," Scholes argued. "We don’t need to give employers any reason to not have their jobs here in the city of Seattle."
For the business community, a payroll tax spells a culling of jobs. Werschkul doesn't think there's any evidence of that.
"We have taxes on business and payroll taxes," Werschkul said, "those are things that exist already and when you think of what’s driving business decisions and where to open stores and to expand businesses, taxes are a small factor in that overall decision."
Think about Amazon's search for HQ2, Werschkul explained. There was a whole lot going on there, but ultimately, Amazon chose to settle in two of the highest taxed states in the country.
"I’m sure the tax environment always plays some factor," Werschkul said, "But it doesn’t seem like quite as big of a driver as folks suggest it to be."
Still, the point is moot for Scholes.
"The city needs to focus on recovery," he said.
The business pushback is expected, Werschkul explained. Regardless of timing, global pandemic, or economic prosperity, businesses will argue that it's "the wrong time to tax big business."
What about the budget?
Wilson and the Transit Riders Union gathered on the front steps of City Hall on Wednesday ahead of the council's (albeit remote) Budget Committee meeting on the tax. They were "emphasizing the big depth of needs" and calling for "a big economic relief package." It wasn't tied to any general proposal, however. Just that sentiment that something needs to be done.
For Scholes, the only way to "get the city budget back is getting the economy back." He called the payroll tax "another hurdle" to that recovery.
He suggested that the council tap into its Rainy Day Fund, the revenue stabilization account with $60.8 million in the bank. He also hinted at cutting spending.
"There are difficult decisions they’re going to have to make to manage their expenses," Scholes said. "These are decisions that every business has to make. The city has to go through that exercise. You can’t take the easy way out and harm our economy."
That sentiment is backward, according to Werschkul's economics.
"When we think of the moment when we’re through this public health crisis and businesses are reopening and we're hoping the economy picks back up," Werschkul said, "if we’re cutting public investment at that moment, we know it will lengthen and deepen the economic recession."
The debate will continue on May 13 when the council's Budget Committee votes on the tax.