In a fast about-face, Seattle caves to Amazon, overturns landmark corporate head tax

Elizabeth Weise | USA TODAY

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SAN FRANCISCO — Just a month after Seattle passed a controversial corporate head tax aimed at Amazon and other large businesses that would have funded homeless programs, the city council voted to rescind the plan Tuesday afternoon. The about-face comes after a ferocious backlash by some of the biggest companies in town.

The vote was taken after more than two hours of heated and emotional testimony on the part of those who support the tax and those who felt it would damage the city's businesses and scare investment away.

The city council's shift comes as many cities, not just Seattle, struggle to deal with rising levels of income inequality, gentrification, homelessness and change wrought by an influx of large numbers of highly paid tech workers. The anger and frustration over this confluence of issues has led some to focus on large tech firms such as Amazon in Seattle or Google in Silicon Valley, as the cause.

In Seattle, a 4% rise in homelessness in the past year as rents have risen has been the flashpoint for these issues. A tally of the homeless conducted in January by the All Home coalition found 8,599 people living in the streets, in vehicles, in abandoned buildings or in tents in the city.

The Seattle city council is feeling a real sense of urgency as it relates to homelessness,” said Jeffrey Shulman, a marketing professor at the University of Washington who studies growth in Seattle. “We’ve got people dying on the streets, it’s a visible crisis affecting everyone, not just those in need.”

That helped lead to the May 14 vote by the council that unanimously passed a measure requiring companies with revenues of more than $20 million a year pay an annual $275 tax per employee. The vote came after weeks of hearings, demonstrations, heated public meetings and a threat by Amazon to stop construction of its newest Seattle tower and to pull out of leasing another.

But pushback from Amazon, Starbucks and other large firms resulted in a surprise swerve by the council on Monday, when its president, Bruce Harrell, announced he had scheduled a special meeting on Tuesday about a repeal of the tax.

The unprecedented reversal vote happened even as a campaign called No Tax on Jobs, funded by area businesses, was also preparing to submit petition signatures to qualify for a referendum on the tax for the November ballot. It had gathered more than 45,000 signatures, supporters said.

“Today’s vote by the Seattle City Council to repeal the tax on job creation is the right decision for the region’s economic prosperity," said Amazon communications vice president Drew Hardener.

In a statement, Seattle Mayor Jenny Durkan and all but two of the City Council, said “We heard you. 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.”

Three of those council members were the original sponsors of the tax

“It is clear that the ordinance will lead to a prolonged, expensive political fight over the next five months that will do nothing to tackle our urgent housing and homelessness crisis,” the statement said.

But council member Lisa Herbold, another of the original sponsors, countered that turnabout was the result of a ploy to convince Seattleites that the “increased levels of human suffering we see in our city is caused by government inefficiency rather than by the Gilded Age level income inequality.”

City constraints

Washington state, and by extension Seattle, faces an especially difficult situation when it comes to funding constraints. It is one of the few states in the nation with no income tax, which is illegal under state law. Instead it must rely on property taxes, which can only be raised so high, said Tom Cooke, a professor at Georgetown University's McDonough School of Business.

A tax on how many employees a corporation has, based on its revenue, is one way for elected officials to create a source of revenue that doesn’t directly affect individual voters.

“That’s historically how we’ve build football and baseball stadiums, by taxing things like hotels and rental cars because it doesn’t affect the individual voter,” said Cooke.

However Seattle quickly realized that the proposed tax, which would have gone into effect in January, could also potentially affect how many employees companies might hire and even if they would stay in town. Construction workers, among others, marched and rallied against the tax. Amazon, in particular, has been on a building spree in the city.

In the end, “the whole thing unfolded in a really bad way. I don’t think anyone has come out of this looking good,” said Shulman.

Still, he's hopeful that this could be a refresh, signaling a more collaborative approach to address this crisis rather than a demonization of business

"Businesses need to address the homeless challenge," he said. "I’ve talked to many Amazon employees and it’s just a drain on morale."

Rising rents the problem

The homeless problem in Seattle and the county it sits in, King County, is largely the result of rising rent costs, even as poverty levels have fallen, according to a report released in May by the consulting firm McKinsey that was commissioned by the Seattle Metropolitan Chamber of Commerce.

At the same time, homeless housing and crisis response systems in the county have improved in performance and efficiency and have functioned well.

The problem is that the shortage of affordable housing options continues to increase, making fewer units available to households earning below 50% of the median area income. In 2011, 35% of county rental units would have been affordable to those residents. In 2017 it was just 18%, the McKinsey study found.

Those numbers show that what the county needs is investment in affordable housing, and given the tax constraints created by state law, there are not many ways to do that, said Alison Eisinger, executive director of the Seattle/King County Coalition on Homelessness.

The corporate head tax was identified as one of the few new potential sources of revenue available by a task force the Seattle City Council created during the budget process last year, she said.

“The right-wing messages that are being trumpeted — that government doesn’t know what to do and can’t be trusted to solve the issues — are false. We have seen very strong results from the things we’re doing,” she said.

She said those fighting to help end homelessness in no way opposed to businesses profiting from their work.

“We welcome business and jobs. We are interested in corporate reasonability. And what that means is you reinvest in the infrastructure of the community that has welcomed you,” she said.