Seattle Council Big Business Tax Will Move Forward After Passing Budget Committee

by Chetanya Robinson

A tax on big businesses that would raise over $200 million dollars per year and pay for COVID-19 relief and affordable housing is on the City Council's agenda after sailing through the budget committee with a 7-2 vote.

In its amended form, the tax would raise some $40 million more per year than its previous iteration and would have no cut-off date. The tax will come to a City Council vote on July 6.

Only Councilmembers Pederson and Juarez voted against passing the tax out of committee, arguing it should go toward voters on the ballot in November instead. Mayor Durkan agrees the tax should be approved by voters, the Seattle Times reported, and while she could veto the tax, a vote of six Councilmembers would override the veto.

Introduced by Councilmember Teresa Mosqueda, "JumpStart Seattle" would tax the payrolls of companies making at least $7 million per year, specifically charging companies on employee compensation of $150,000 a year or higher.

The tax would start generating an estimated $214.3 million per year once it fully ramps up in 2022.

In its first two years however, it would pay for COVID-19 relief efforts, including $86 million dollars in 2020 for housing and homelessness prevention, grants to small businesses and childcare providers, financial assistance for immigrants and refugees, and emergency grocery vouchers. Because the tax wouldn't be collected in 2020, this $86 million would be borrowed from City reserves and paid back with future tax revenue.

In 2021, another $86 million dollars would continue to fund these COVID-19 relief efforts, while also funding City programs and services that would otherwise undergo funding cuts due to the budget shortfall brought on by COVID-19.

In 2022 and onward, the tax would raise a projected $214 million and would be applied to affordable housing construction, support for small businesses, and addressing systemic inequalities through the Equitable Development Initiative.

Councilmember Mosqueda, chair of the budget committee, first introduced the legislation on June 16. It briefly competed with a larger tax introduced by Councilmembers Sawant and Morales, before Mosqueda adopted JumpStart as the Council's base legislation, displacing the other proposal. Sawant's and Morales's tax, aligned with the Tax Amazon movement, would have raised $500 million per year by also taxing payrolls above $7 million, and would have paid for affordable housing, emergency COVID-19 relief, and Green New Deal measures.

Mosqueda's bill arrived in the budget committee on July 1 with 21 proposed amendments, proposing tweaks to how much the tax would raise, how long it would last, and who might be exempt.

Both Morales and Sawant introduced amendments to raise more revenue through the tax. Councilmembers unanimously adopted an amendment from Morales and Mosqueda that increased the total revenue from an estimated $174 million to $214.3 million by adding a third tier for taxation.

Under the amended bill, companies between $7 million and $100 million in annual payroll would pay 0.7 percent on salaries above $150,000 and 1.7 percent on compensation above $400,000 per year. The same structure would apply to companies with payrolls between $100 million and $1 billion per year, except that compensation above $400,000 would be taxed at 1.9 percent for these companies. Companies with over $1 billion in revenue would pay 1.4 percent on compensation above $150,000 and 2.4 percent on salaries above $400,000.

As a result, the tax would raise some $40 million more than before. Uncertainties remain though: These estimates do not include potential revenue from companies over $1 billion in revenue. The state Employment Security Department would not share with City Council central staff analysts specific details about these companies, such as how many there are and how much revenue would be generated by taxing them.

On the other hand, central staff analyst Dan Eder pointed out that the tax could raise less than the projected amount depending on the economic impacts of COVID-19.

Councilmember Sawant moved to increase the tax to $500 million per year, to match her previous legislation, by applying a flat 1.63 percent tax across all wage categories, but this effort failed to receive support from other Councilmembers.

Also unsuccessful was an amendment from Sawant that would raise an additional $52 million annually to build over 1,000 homes for those making between 0 and 80 percent of Area Median Income in the Central District. On June 18, Sawant appeared with Black pastors and community leaders calling for this housing to be built over three years, partly funded by the big business tax.

Sawant also failed to gain traction with an amendment that would raise $52 million per year for Green New Deal measures, such as converting housing units to electric heating, installing solar panels, and training people for jobs in the green economy.

Councilmembers Herbold and Sawant proposed an amendment that would raise an additional $74.5 million in revenue by starting tax collection on August 1 rather than January 1. Morales backed the amendment, but it failed with six opposed. Councilmember Strauss expressed concern it would not give companies enough time to prepare. Mosqueda said it would rely on data from before companies were able to adjust to COVID-19, and that some may not even still be in business.

Councilmembers Juarez and Pederson tried and failed to pass an amendment that would put the tax proposal on the ballot in November, rather than putting it to a vote before the City Council. Pederson suggested putting the payroll tax (with the exception of the COVID-19 emergency relief portion of the legislation) before the public, in an effort to avoid backlash similar to the one that faced the Employee Hours Tax of 2018, which was one fourth the size of the current tax proposal. Pederson also noted that tax levies to fund housing, education, and transportation are customarily put before voters. Juarez said she supports progressive revenue, but preferred to put the tax to voters — who she believed would pass the tax — because of the uncertainty caused by COVID-19.

Gonzalez noted that levies based on property or sales taxes face public votes because most of the public bears the burden, unlike the payroll tax.

Councilmembers grappled with whether to exempt some healthcare providers from the tax, ultimately opting to shelve the discussion for later. An amendment from Mosqueda would exempt nonprofit medical provider salaries between $150,000 and $400,000 for five years. An amendment from Pederson would exempt hospitals and healthcare providers for two years.

Juarez and Strauss were conflicted about these amendments. Juarez said she liked aspects of both, but Mosqueda and Pederson agreed to withdraw the amendments and try to reconcile them later.

Several amendments addressed the expiration date for the tax. The first version of the tax expired on December 31, 2030 — or earlier if King County or the state creates a new progressive revenue source that meets the same needs.

Councilmembers ultimately voted to adopt a proposal from Sawant removing the expiration date for the tax, but adopted an amendment to end the tax if the county or state introduced a progressive revenue source that would provide an equivalent amount of funding for Seattle.

Sawant called the tax an "absolutely historic victory for working people," crediting the Tax Amazon movement for persisting through setbacks, such as the repeal of the Head Tax and the attempt by Amazon to elect a slate of business-friendly candidates in 2019. "We are here today because of the solidarity and determination of working people to smash all obstacles that stood in our way," Sawant said.

Morales said the tax comes at a crucial time to help Black and Brown communities and thanked organizations in south Seattle for their advocacy, including Got Green, Puget Sound Sage, InterIm CDA, El Centro de la Raza, Rainier Beach Action Coalition, and others.

"This begins to address the history of under-investing in Black and Brown neighborhoods by shifting the burden to the wealthiest corporations in the city," she said.

Chetanya Robinson is a Seattle-based journalist

Featured image sourced from the Seattle City Council's Flickr account