Head tax 050918 seattle city council hayat e9inxu

After months of crafting legislation—and, really, years’ worth of debates—the Seattle City Council in a unanimous vote approved a head tax on top businesses expected to raise $47.4 million a year to help address the city’s growing homelessness crisis. 

Council sponsors on the proposed legislation compromised with Seattle Mayor Jenny Durkan to approve a tax nearly half the rate a task force recommended, but still nearly double what had been rejected on the council just six months earlier.

The bill, effective in 2019, will tax businesses $275 per full-time employee per year (14 cents per employee hour) and affect businesses making $20 million or more in taxable gross receipts. The tax expires at the end of 2023 with an option for renewal.

The spending plan shifts in council's favor, keeping intact the priorities for council members who supported the original $75 million tax by funding affordable housing over Durkan’s plan to fund emergency services.

Durkan praised the legislation as an example of policymaking that heard all sides (though businesses oppose any form of a head tax), adding that the sunset clause was important as an accountability measure for Seattle to show the results of their investments. 

“This legislation will help us address our homelessness crisis without jeopardizing critical jobs," Durkan said. "Because this ordinance represents a true shared solution, and because it lifts up those who have been left behind while also ensuring accountability and transparency, I plan to sign this legislation into law."

Amid a tense city council meeting—chants from community organizers and shouts from both sides—supporters of the $75 million proposal said the amendment was the strongest tax they could muster that could sustain a potential veto after discussions with the mayor’s office over the weekend.

"I want to be clear that I think the bill before us, unamended, is the best path forward,” said council member Mike O’Brien, who was one of two sponsors of the council bill implementing a head tax in October. “We could not find a path to get the number of votes we needed to put this bill in place.”

The passed bill is not far from Durkan’s original plan, which proposed taxing $250 per employee per year for five years and failed to draw the tax’s sponsors when they voted Friday. Another amendment proposed by Lisa Herbold, for $350 per employee per year, also failed. 

The city will conduct an assessment on the impact of the tax and how that revenue was spent, to be completed in 2023 when the council considers whether to renew the tax. The assessment and the sunset clause in the new tax appeases opponents who demanded better accountability from the city and more results from the taxes they've already collected. 

Still, business leaders say Durkan's modified negotiations with council members weren't enough, and that the city should instead focus on a regional approach to homeless with a countywide policy.

"A tax on jobs at any level is bad economic policy and will negatively impact Seattle’s economy and city tax revenues," the Downtown Seattle Association said in a statement Monday afternoon. "It is through greater collaboration and clear and effective strategies, not taxing jobs, that we will help more people off the streets in our communities." 

And the Seattle Chamber: “Taxing jobs will not fix our region’s housing and homelessness problems," said Seattle Chamber CEO Marilyn Strickland. "If the Seattle City Council is serious about addressing these challenges, I hope we can count on their leadership on two critical issues: the HALA upzones, which address our outdated zoning, and aligning our fragmented homelessness services system.”

In a separate resolution, the council in a 5-4 vote approved a spending plan that includes constructing 591 new affordable housing units—291 units serving those between 30 and 60 percent of average median income and 302 units for those between 0 and 30 percent AMI. The resolution also includes funding operational and support services to another 302 units for those in the 0-30 percent AMI range.

Council members who staunchly opposed Durkan's shift in funding priorities pointed to a McKinsey study that recently estimated King County needed up to $410 million to address the homelessness crisis, and that lack of housing supply is the primary cause of homelessness. Durkan in a press conference Monday said she still had concerns about the spending and wanted homelessness services that would grant immediate results. 

City leaders for years have been struggling with the state’s limiting tax system that disproportionately affects low-income households; a study by the Institute on Taxation and Economic Policy using 2015 data showed the poorest 20 percent of the state pays 16.8 percent of their income toward taxes, while the wealthiest 1 percent pays 2.4 percent. 

Another report published by the liberal think tank Economic Opportunity Institute ranked Seattle as the city with the most unfair tax system in the most regressive state. 

That creates a challenge for city officials who want to raise more money for additional services but worry about growing tax fatigue and pricing struggling residents out of Seattle. The council already passed a city income tax, which is illegal under state law and is likely facing a legal battle in the state Supreme Court. 

Supporters who wanted $75 million in ongoing revenue say they'll continue to look for other sources. Durkan in a press conference late Monday reiterated that homelessness was a regional problem and other local governments in the area should pay their fair share—"if we keep paying the bill, there's no reason for them to step up." 

Even in Seattle, where residents have historically embraced passing taxes for services, the city had been divided over the tax—which at times became more of a symbol and prompted fights over the city's ideology than fights over the actual substance of the tax.

Though large labor groups like the Martin Luther King County Labor Coalition endorsed the tax—and in a statement said "it was the right decision for our city"—some unions who have benefited from the business growth fought hard against it.

When asked about whether council members are worried about losing political capital, Herbold pointed to other local governments in the region who haven't asked for more taxes or revenue streams to address homelessness.

"A lot of folks throughout this process time and time again point to the fact that this is a regional problem," she said. "I’m really looking forward to other leaders in our region using their political capital to help us with a regional solution."

Seattle, facing an economic recession, in 2009 repealed a head tax that had been adopted three years earlier for transportation improvements.

Herbold, once a legislative aide for former council member Nick Licata, celebrated that longtime supporters for a head tax saw a tax passed on Monday that was both larger and more progressive—including an exemption for small businesses and a threshold of $20 million, much higher than $5 million, in taxable gross receipts.

Council president Bruce Harrell pushed back on a recent study that reported the majority of Seattle residents opposed the head tax and said the council simply doesn't know how popular it had been. 

"I think people recognize that we have limited ways to raise money as a city," council president Bruce Harrell told reporters after the meeting Monday. "I think that we do have some very wealthy companies around here and they can step up. And we certainly have their attention."

Updated 6:25pm after statements from the mayor. 

Updated 9:20am on May 15, 2018, to correct a typos that said the tax would expire in 2013, not 2023, edit structure, and update to include more statements and information.

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