The city of Seattle has a homelessness problem and the Seattle City Council thought they had a simple solution. They would take from the rich and they would give to the poor. Predictably, it didn’t work.
The city enacted a so-called head tax in May on big businesses. It didn’t last a month.
“We heard you,” said Seattle Mayor Jenny Durkan in a joint statement with seven members of the city council who had supported the tax. “This week, the City Council is moving forward with the consideration of legislation to repeal the current tax on large businesses to address the homelessness crisis.”
While this admission that redistribution doesn’t work is welcome news, it is still concerning that the leadership of a major city seriously thought that creating opportunity required taxing jobs.
Seattle would charge companies about $275 per full-time employee per year and raise around $48 million annually ostensibly to support affordable housing and homeless services. Businesses with $20 million in gross revenue would be on the hook beginning in January. Of course, they didn’t wait around to watch their earnings evaporate.
The business community explained to the bureaucrats that if the tax went into effect, they would skip town. More than 130 Seattle CEOs signed on to an open letter explaining basic economics to city council. They likened Seattle’s decision to tax the most successful businesses to “telling a classroom that the students who do the most homework will be singled out for detention.”
And when words didn’t work, they flexed their muscle. Real estate company Zillow threatened to place jobs at offices outside of city limits. Travel giant Expedia planned to move out of the city altogether. And Amazon stopped construction on its headquarters in downtown while shipping thousands of jobs across the border to Vancouver.
Corporations weren’t the only ones complaining. Some trade unions, no friend to capital traditionally, started protesting the head tax as it dug into their bottom line.
“In the building trades, we don’t hate our employers,” Monty Anderson, executive secretary of the Seattle Building and Construction Trades Council, told local press. “I think some of these other unions — bless their heart — took a hard line against these employers and were demonizing them.”
There’s an old saying in economics: If you tax something, you get less of it. That argues against taxing jobs. Seattle learned this lesson quickly and the city council is expected to overturn the tax later this week. Hopefully Seattle and other West Coast cities learn that redistribution won’t work. Cupertino, Palo Alto, and San Francisco are toying with imposing similar taxes.
