This morning, Council member Teresa Mosqueda unveiled her own progressive revenue proposal for Seattle, which is at once both a “light” version of her colleagues’ “Amazon tax” proposal, and also even more explicitly targeted at Amazon.
It has been Seattle’s worst-kept secret that Mosqueda has been shopping around various forms of an alternative to the $500 million payroll tax that Council members Sawant and Morales introduced earlier this year. This morning she called a press conference with representatives from business, labor, and advocacy groups to highlight the efforts she has put into trying to build a consensus around her proposal, which she calls “Jump Start Seattle.”
Like the proposal by Sawant and Morales, Mosqueda’s proposal also comes in the form of three bills; SCC Insight obtained drafts of them that Mosqueda circulated to stakeholders this week. The first bill establishes the tax; the second is a spending plan for 2020, and the third is a spending plan for 2021 and beyond.
The tax bill takes one more shot at identifying a subset of Seattle employers who could afford to pay a new tax in the midst of a pandemic and economic downturn. The tax would apply to companies with annual Seattle-based payrolls of at least $7 million, and would only tax the cash compensation of those employees making $150,000 or more; this was based upon feedback from stakeholders that taxing lower-wage jobs would disproportionately impact their ability to get their jobs back as the economy recovers. The tax rate is tiered, based both upon the size of the company’s payroll and the amount of an individual’s compensation. For most companies, salaries between $150,000 and $499,000 will be taxed at 0.7%, and salaries of $500,000 and above will be taxed at 1.4%. But for any company with a total Seattle-based payroll above $1 billion, those rates increase to 1.4% and 2.1% respectively.
Mosqueda and the Council’s staff were unable to provide any data about the number of companies who would fall into each category, saying that they worked with the state Employment Security Department but the department could not share detailed company employee and wage data with the city for reasons of confidentiality. But by all appearances the top tier, those companies with payroll above $1 billion, consists of exactly one company: Amazon. So while the exemption for compensation under $150,000 is of great benefit for many companies, the bill singles out Amazon for higher tax rates than any other company. Even though it doesn’t name Amazon, the effect is clear, and it puts the proposal in legal jeopardy by giving the appearance of singling out one company for punitive treatment.
There are a handful of other exemptions in the bill: grocery stores, insurance businesses and agents, motor vehicle fuel merchants and distributors, liquor stores, and other government agencies. Most of these exemptions are required by law. On the other hand, gig workers are included under “employees” for the purposes of the tax; so if any Uber drivers manage to pull in over $150,000 per year in Seattle, Uber will need to pay taxes on their compensation.
The tax would be effective as of January 1, 2021, and would expire on December 31, 2030 — ten years. The expectation is that it would raise $172 million in 2021 and $203 million in 2022, This is a conservative estimate; since the city doesn’t have concrete salary data on Amazon’s employees, it estimated revenues on the assumption that all companies pay the lower-tier rates.
Mosqueda’s 2020 spending plan is focused on expanding the city’s response to the COVID-19 crisis. It dips into the city’s emergency fund and its “rainy day” fund for a total of $86 million, and would spend those dollars on:
- Small business support: $18 million;
- homelessness response affordable housing, and mortgage support programs: $36 million;
- Support for immigrants and refugees, many of whom are ineligible for the existing federal COVID aid programs: $18 million;
- Food security programs: $14 million.
There are two issues with this plan. First, the “rainy day fund,” as established in the Seattle Municipal Code, is to be used as a backstop for revenue shortfalls, not for new spending. In an email this afternoon, Mosqueda acknowledged the issue. She and her colleagues could circumvent it, however, simply by changing the law; the state law that authorizes cities to establish such a rainy day fund does not place those kinds of restrictions on its use, so there s no inherent limit on the Council’s ability to pass legislation to use it as Mosqueda intended. The second issue, however, is that with the city facing a revenue deficit of $210-300 million this year alone, the rainy day fund is likely to be needed for its original purpose: continuity of existing spending. Mayor Durkan has not yet transmitted her proposed re-balanced budget to the Council yet, but it almost certainly will use some or all of those funds — leaving them unavailable for Mosqueda’s spending plan.
Mosqueda’s proposed spending plan for 2021 takes the first $86 million of payroll tax revenues and refills the emergency and rainy day funds. The remainder of the 2021 revenues — another $86 million — would be split between continuing COVID-19 relief programs ($17 million) and continuing to provide revenue support for other city programs that existed before the COVID-19 economic and budget meltdown ($65 million).
In 2022 and through 2030, the tax revenues would be split three ways:
- Construction and operation of affordable housing and permanent supportive housing: 65%
- Equitable Development Initiative projects: 10%
- Support for local businesses and tourism to spur the local economic recovery and provide economic stability for the workforce: 20%
5% of the revenues, about $10 million per year, would be reserved for startup costs and administration.
In addition to a 10-year sunset, the tax bill also acknowledges that there is an ongoing effort to fix the existing regressive tax system at a regional and/or state level. The bill states that if progressive revenues are established at those levels, the Council would intend to repeal this payroll tax.
Response today to Mosqueda’s announcement has been mixed, as one might imagine. Representatives from Expedia and Ethan Stowell Restaurants, who were invited by Mosqueda to participate in the press conference, were generally positive about the proposal despite their expectations that their companies would be paying the tax. However, the Seattle Metropolitan Chamber of Commerce came out against the proposal:
“Our region is in severe economic shock. We need leaders to focus on an equitable and inclusive economic recovery that gets businesses back open and people back to work. It’s still not clear how long impacts like job losses are going to last, and many businesses in Seattle and throughout our region are not in the same place they were at the start of the year. Policy proposals should reflect that reality. This conversation about public budgets and revenues is bigger than just Seattle and should happen at the state level. A new city tax on businesses at this moment will not help economic recovery.”
Mayor Durkan is apparently non-commital. A spokesperson for the Mayor provided the following statement:
“Mayor Durkan has long supported the need to reform Washington state’s regressive tax system and was one of the leading advocates for a regional progressive payroll tax on businesses that was proposed in Olympia earlier this year. Mayor Durkan also believes an income tax would make our tax system less regressive and could generate several hundreds of millions in new revenue each year.
Understanding many of our residents have been disproportionately impacted by COVID-19, Seattle will need to lead the way on recovery for our residents and businesses as we face a $300 million budget shortfall and urgent needs in our community. The Mayor will soon be presenting her plan to rebalance the 2020 budget as required to address the loss in revenue. The budget will continue investments in the community with federal and state resources and will include cuts and efficiencies for 2020. Later this year, the Mayor will also present the budget for 2021, which will include new community investments during this historic time.
The Mayor has not yet reviewed the legislation but is committed to working with the state delegation, federal delegation, City Council, and community leaders to identify new, progressive revenue sources to invest directly in our communities.”
Council member Sawant slammed Mosqueda’s plan; in an email to her supporters, she said the proposal “represents a positive response to our demand for big business taxes, though it falls far short of what working people, and especially black and brown communities, need in our deeply unequal city.”
Mosqueda said that she had spoken with over 100 organizations, but not directly with Amazon, about the proposal. Amazon did not respond to a request for comment today.
Mosqueda will discuss her proposal at her Budget Committee meeting tomorrow morning, where the competing proposal from Sawant and Morales is already on the agenda.
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