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Business 'Head Tax' Back On The Table For Seattle City Council

Elaine Thompson
AP Photo
Tarp-covered tents line a sidewalk beneath a highway and adjacent to downtown Seattle, Wednesday, March 8, 2017.

The Seattle City Council is reconsidering a "head tax" on businesses to pay for housing and homeless services after council members failed to pass such a tax last year.

The council did pass a resolution in December that created the Progressive Revenue Task Force to study the possibility of a future tax. The taskforce presented its findings to council members Wednesday.

The task force had to do two things. First, the group had to determine how much Seattle needs to spend and what to spend it on to make a dent in the city's homelessness crisis.

The number they came up with was $150 million more per year. The task force recommended about 80 percent of that to be spent on construction of affordable housing, providing supportive services in some of that housing, and rental subsidies. The other 20 percent would go primarily toward emergency homeless services.

Their second task was to find ways to generate that revenue while limiting the impact on low-income taxpayers.

That's where the "head tax" comes in. The tax would be paid by employers based on how many employees they have. The taskforce's specific recommendation would be a graduated tax on businesses that pull in more than $10 million per year in gross revenues. They also recommend a flat "skin-in-the-game fee" for businesses with between $500,000 and $10 million in gross receipts.

It's estimated the tax would bring in about $75 million per year for the city,  half of what the task force said was needed. 

According to the task force report, the hope is the other $75 million might come from regional efforts to combat homelessness. The group also makes recommendations for other revenue sources worth studying.

It's a complicated policy proposal. City Council Finance Committee Chair Sally Bagshaw expressed worry that some constituents might be worried about any increases in taxes or city spending.

"How do we say in a transparent way, 'Here's the taxes or here are the fees or here's what we're asking for, and here are the benefits?'" she asked.

Task force members like Lisa Daugaard emphasized they did not take raising taxes lightly.

"I would say probably 70 percent of the discussion on the task force was about how to structure a new tax so that it was most equitable, had the least negative impact on struggling businesses, small businesses, low-margin businesses. That was the substance of the work of this group," Daugaard said.

Council members said they hope to vote on head tax legislation in May.

Seattle Metropolitan Chamber of Commerce President Marilyn Strickland Reacts to the "head tax" proposal before the Seattle City Council

The prospect has some business owners bracing for a financial blow, said Marilyn Strickland, president of the Seattle Metropolitan Chamber of Commerce.

"They feel like every time they turn around they’re being asked to contribute more and more," she said.

In recent years, Seattle business owners have failed to stop stricter employee scheduling rules and one of the highest minimum wages in the nation. 

Leaders of the Seattle Metropolitan Chamber of Commerce declined to participate in the task force that drafted the tax proposal, saying the process seemed designed to justify a tax.

Strickland said City Council members should look at how they're spending existing funds before seeking new revenue. She also said city leaders should explore zoning changes needed to accommodate more affordable housing. 

"We acknowledge that housing prices have increased dramatically because we're just experiencing this growth that we never expected," she said. "But we don't think that the default position of 'Business isn't paying its fair share and business should pay yet more taxes' is the right way to go." 

The head tax proposal under consideration last fall looked considerably different from this proposal.

The old proposal was somewhat simpler because it had a flat per hour per employee rate. The threshold for businesses affected was also lower at those grossing more than $5 million. Ultimately it was estimated that it would have raised only $25 million per year.

Seattle used a similar tax to fund transportation improvements between 2006 and 2009. It was ultimately repealed in an attempt to promote business growth during the recession.

A Seattle native and former KNKX intern, Simone Alicea spent four years as a producer and reporter at KNKX. She earned her Bachelor's of Journalism from Northwestern University and covered breaking news for the Chicago Sun-Times. During her undergraduate career, she spent time in Cape Town, South Africa, covering metro news for the Cape Times.
Will James is a former KNKX reporter and was part of the special projects team, reporting and producing podcasts such as Outsiders and The Walk Home.