Council considering even larger employee hours tax
Update: The council's Finance and Neighborhoods Committee will take up the topic of an employee hours tax and other recommendations of the Progressive Revenue Task Force during its meeting at 2 p.m. Wednesday, March 28, and could possibly make a vote that would put the discussion to the full council.
The Seattle City Council is once again considering an employee hours tax, which is being recommended by the Progressive Revenue Task Force it formed after having rejected such a proposal last November.
Rather than approving taxing businesses grossing more than $10 million annually 6.5 cents per employee per hour last year, which was estimated to generate about $25 million in new revenue annually to address homelessness and housing affordability, the council now has been provided several options for an employee hours tax (EHT) that would triple that revenue to $75 million per year.
The City of Seattle did collect an EHT from mid-2007 to until its repeal at the end of 2009, said Erik Sund with Seattle Central Staff during a Finance and Neighborhoods Committee meeting on Wednesday, March 14. That had been used for funding transportation needs, he said, adding there have been subsequent EHT proposals made ever year since 2014, including the proposal that didn’t pass last year.
The council instead passed a resolution in November to create the 17-member Progressive Revenue Task Force, which published its final report in mid-March that recommends the $75 million EHT, as well as several other options for generating an additional $75 million. The employee hours tax would suffice if King County’s One Table group — convened by County Executive Dow Constantine and Seattle and Auburn mayors Jenny Durkan and Nancy Backus — can propose ways of reaching that additional $75 million for a total of $150 million in new annual revenue that could be directed toward making a dent in the homelessness crisis.
The PRTF provides three options for an employee hours tax, with two options setting a gross revenue threshold for a business at $8 million, and another that goes to $10 million. Transit Riders Union organizer and task force member Katie Wilson said there might be an option to structure the tax to use a percentage of a business’ total payroll to generate a tax rate rather than the per employee per hour formula, which would make the tax more equitable.
“We note that there are no known data establishing that an EHT-like tax adversely impacts employment opportunities,” the March 9 report states, “and there are many data that show that business-friendly climates are jurisdictions that adequately address homelessness, fund quality schools, and maintain infrastructure necessary to move people and goods.”
The task force is also recommending other businesses pay a “skin-in-the-game fee, which is causing some controversy right now,” Wilson said.
Prior to the finance committee meeting, councilmembers received a letter signed by 301 businesses operating in Seattle, including all four co-chairs of the mayor’s recently formed Small Business Advisory Council, opposing the task force’s recommendation that businesses that don’t meet the revenue threshold just pay a $395 annual fee.
Councilmember Kshama Sawant said she’d prefer to have an employee hours tax that hits big businesses for $150 million, but excused herself from the meeting shortly after making that case.
“If you want to talk about skin in the game, let’s talk about the people and the corporations that really need to have skin in the game. It’s big business, not the small businesses,” Sawant said. “Once you start talking about taxing small businesses, in no time small businesses will be the front of the opposition against this tax, and it will be very convenient for the chamber of commerce and Amazon and all of the big businesses that we should be taxing to allow small businesses to be on the frontline and them in the background.”
Councilmember Lorena González said she wants to stay focused on the $75 million annual goal, which PRTF member Lisa Daugaard said was a hard enough figure to get the task force to agree to unanimously.
Councilmember Sally Bagshaw contested Sawant’s claim that big businesses would hide behind small businesses, stating the letter signed by 301 business owners was created of their own accord. She said she wants city staff to compile a full economic analysis, “because I think the results are going to be surprising, because if we do this, we will all be better off.”
Daugaard told the councilmember the task force had already assessed that Seattle businesses face a higher tax burden than in surrounding cities.
“There’s no need to figure that out,” she said, “we know that that is true.”
She added the letter from businesses focuses just on the skin-in-the-game fee, which is mostly a symbolic buy in, and the amount could vary, but would always be low.
“I hear you, but I would still like to pursue this economic analysis,” Bagshaw said, “so we can say, ‘This is what it will cost, and here are the benefits we are getting, and we need everybody at the table because the benefits are real.’”
Councilmember Lisa Herbold, who co-chaired the task force with González, said such an analysis seemed unnecessary, and that the city already has that information.
“The impact is whatever number we choose,” she said, adding the task force started at a $200 fee and ended at $395.
Sund said the data the city was using when considering an employee hours tax last year indicated that a $10 million gross revenue threshold would have impacted 1,100 of the city’s 22,000 businesses, or about 5 percent.
“I’m having a hard time figuring out what the question is that you are seeking an answer to,” Herbold told Bagshaw.
The PRTF recommends all employers in the city contribute, save for maybe those with businesses that generate less than $500,000 in revenue. The report emphasizes not wanting to negatively impact small businesses, especially those that are owned by historically marginalized populations.
The task force recommends revenue generated by an EHT be split, with 80 percent going toward generating housing, and the other 20 percent to fund emergency shelter and services.
“Considering the disproportionate impact of both homelessness and displacement on communities of color, we believe the City should encourage and support community of color organizations that are working to develop affordable housing,” according to the report.
González said Washington has the most regressive tax system in the country, and data shows that businesses are not exempt from that. The City of Seattle is running out of revenue-generating options, she said, and “this is what we’re left with.”
The city has a $290 million housing levy, González said, but that puts the burden of addressing low-income housing creation on homeowners and renters, who are also living with Seattle’s current affordability crisis.
Councilmember Mike O’Brien said he thought the City of Seattle was being bold when talking about a $25 million EHT, and now the city council is considering a proposal to triple that revenue.
“That boldness is something that I’m excited to work on in the next couple months,” he said.
The council expects to vote on a legislative proposal later this spring.
Other potential new revenue streams
In order to generate an additional $75 million over the recommended employee hours tax, the PRTF also recommends the City of Seattle consider a local estate tax, taxing exceptionally high compensation, a luxury tax on expensive property purchases and reinstating the City Growth Fund.
The task force cites Portland’s “Pay Ratio Surtax” when proposing a tax or similar fee when a CEO-to-worker pay ratio exceeds 100-to-1, and New York City’s “Mansion Tax” when recommending the city lobby the Legislature for authority to impose a .25-1 percent tax on luxury homes costing more than $1 million or second home purchases. The PRTF also recommends finding ways to tax speculative real estate investments and vacant or unoccupied properties.
The City Growth Fund was created by the Seattle City Council in 1985, and ended in 2002. The task force recommends reestablishing the fund citywide.
“The Growth Fund used a set formula to calculate the amount of funding generated from property tax revenues tied to new construction downtown and used that revenue to acquire and rehabilitate existing low-income housing that was at risk of being redeveloped and to develop new low-income housing,” the report states.