Seattle Council Passes Smaller $275 Head Tax After Mayor Durkan Threatens Veto

On Monday, the Seattle City Council unanimously passed an amended version of the Employee Hours “Head” Tax built on a compromise with Mayor Jenny Durkan that lowered the cost per full time employee from $500 to $275. On Friday, Mayor Jenny Durkan said she would not sign the $500 head tax and proposed a $250 version with a five-year sunset clause, which pushed councilmembers and their staff to work overtime over Mother’s Day weekend to hammer out a compromise.

Councilmembers Lorena González and Teresa Mosqueda said their negotiated compromise maintained the council spending priorities. Namely, it will spend the majority on building deeply-affordable housing rather than on emergency homelessness services that do less to tackle the problem long-term. The council’s bill passed Friday had a roughly 60/40 split with affordable housing creation taking the lion’s share of $75 million in annual revenue. The compromise bill has a 66/32 split on an average of $47.4 million in annual revenue. The head tax will apply only to for-profit businesses with $20 million or more in revenue.

With $28.7 million per year on average for affordable housing creation, Council Staff project the head tax will create 591 new homes for people below 30% of area median income. That works out to approximately $242,600 per unit. An additional $12.5 million over the last three years of the head tax will support the operation another 302 existing deeply-affordable homes. In essence, the head tax is like having another housing levy, but not funded through property taxes.

Mayor Durkan’s priorities that made it into the compromise bill include a five-year sunset clause and the tax rate ended up much closer to her $250 number than the original $500 proposal. The sunset clause means the tax will expire after five years if council does not renew it and will not automatically convert to a payroll tax (0.7% after two years in Friday’s version) that would have more equitably spread the business tax, lowering the burden on employers paying lower wages and raising it on employers paying higher wages.

Amazon, which had signaled its displeasure last week by pausing one construction project, announced it would resume work, but painted itself as very let down.

“We are disappointed by today’s City Council decision to introduce a tax on jobs,” Amazon spokesman Drew Herdener said in a statement. “While we have resumed construction planning for Block 18, we remain very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.”

The online retailing giant is still deciding what to do with the space it leased in currently under construction Rainier Square tower, which last week threatened to sublease. The $500 head tax was expected to cost Amazon more than $20 million per year in year one, but the $275 head tax will lower Amazon’s cost to about $12.5 million in year one, Seattle Times reporter Mike Rosenberg tweeted. Thus, Mayor Durkan’s stand will save Amazon about $8 million per year. Amazon donated $350,000 to the Chamber-led PAC backing Mayor Durkan’s campaign last year. That the amended head tax Amazon will save more than $40 million over its five-year life (versus the version passed out of committee Friday) suggests more than a hundredfold return on that investment.

Part of the reason Seattle considered a head tax in the first place is because the city and state were blocked in their efforts to implement an income tax in order balance out revenue sources. Our state has the most regressive tax system in the nation. Tech multibillionaires like Amazon CEO Jeff Bezos, former Microsoft CEO Steve Ballmer, and Microsoft co-founder and Vulcan, Inc. founder Paul Allen opposed a state income tax in 2010, donating hundred of thousands to the “No” campaign. Seattle passed a city income tax last year–Bezos opposed that, too–but it’s tied up as courts decide the state constitutionality.

Amazon’s move to open a second headquarters (HQ2) was even painted as a reaction to the City of Seattle daring to attempt a city income tax. But many of the HQ2 finalists have income taxes. Seattle is also far from the only city to pass a head tax or payroll tax.

Although the mayor had argued the $500 head tax would cost jobs and have a chilling effect on the economy, she said the $275 version does not risk job losses.

 “This legislation will help us address our homelessness crisis without jeopardizing critical jobs,” Mayor 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.”