Tuesday, October 11

How Amazon Is Holding Seattle Hostage

SEATTLE ― The 9:30 a.m. meeting of the Seattle City Council’s Finance and Neighborhoods Committee ― the most boring name imaginable ― was overflowing. People in the crowd held up signs: “Don’t vote our jobs away” or “Tax the rich.”

The committee was taking public comment on the proposed Progressive Tax on Business, a fee on Seattle’s largest corporations to support homeless services. Last week, Amazon — the employer of more than 45,000 Seattleites that is on the hook for an estimated $20 million under the tax — announced it was pausing construction planning on a tower downtown and would consider renting some of its office space to other companies if the fee goes through.

Now the mayor and City Council have to decide whether to take this threat seriously. About a third of the attendees at Wednesday’s hearing were wearing construction vests. One of them told committee members that if the tax passes, workers will have to go home, look their kids in the eye and tell them Daddy doesn’t have a job anymore. Another called a member of the City Council a communist (she’s actually a socialist) and said she “seems to be getting paid by the residents of Seattle to throw temper tantrums.”

The applause in the room was deafening.

But the fight is about more than just one company or one policy. It is about the growing challenge of running American cities and all the ways companies make it even harder. Seattle faces an impossible choice: Either raise revenue from employers and risk driving them away, or keep levying taxes on voters and risk a backlash that could exacerbate the very problem it’s trying to solve. Whatever happens here, it will be a template for the rest of the country.

Don’t Call It An ‘Amazon Tax’

The details of Seattle’s proposed tax are crucial to understanding why Amazon hates it so much. Under the current proposal, the city will charge large companies 26 cents for every hour their employees work. That’s about $520 per worker every year. Though the tax will apply only to companies with more than $20 million in revenue per year, or about 3 percent of Seattle businesses, Amazon employs about 145,000 people.

And that structure is only temporary. The tax is flat for the first three years: The same fee is levied on wages whether an employee earns $31,200 a year (the minimum wage here) or more than $100,000 (what many Amazon corporate employees make). But in 2021, the flat fee becomes a payroll tax. Large companies will have to pay 0.7 percent of their employees’ wages — that’s $220 per year for minimum wage workers and more than $700 for Amazon’s corporate employees.

It’s the second part, bigger taxes for bigger incomes, that seems to worry the companies here. A few days after Amazon’s announcement, the CEO of Seattle-based Zillow made the same taking-our-ball-and-going-home threat, calling the tax “misguided and too blunt of an instrument.”

But you can’t talk about where the money comes from without talking about where it’s going. Homelessness is an emergency in Seattle. Literally. In 2015, the mayor issued an emergency proclamation over the sheer number of people sleeping outside and in their cars and overflowing from shelters. At last count, Seattle had 11,643 homeless people, and its home of King County had the third-highest homeless concentration in the nation. A study last year by Zillow estimated that every 5 percent rise in Seattle rents pushed 258 more people into homelessness. Rents here rose 13.5 percent last year alone.

The proposed tax would raise about $75 million per year to help address this crisis, bringing the city’s total homelessness budget up to $200 million. Three-quarters of the revenue would go toward building affordable housing and a smaller chunk would go toward direct, immediate services — things like temporary shelters, “hygiene centers” and shelter beds.

“This isn’t about Amazon,” said Lisa Herbold, a Seattle City Council member and a co-sponsor of the tax. “It’s about the humanitarian crisis in our city.”

Amazon vs. Taxes

It’s clear that Seattle’s tax is going to piss off Amazon. The question is, how much?

Everything the company has said so far has been pretty tepid. Amazon has not, in fact, stopped construction on any downtown towers. It has stopped planningfuture construction, a much different (and less costly) decision. Similarly, the company announced it was exploring the option of subleasing some floors in one of its already-under-construction office buildings. That doesn’t mean Amazon is crying wolf, but it does mean there’s still a lot of uncertainty about the company’s response.

Even if members of the Seattle City Council approve the tax — hell, even if they triple it — Washington is still a relatively cheap place to do business. It has no income tax (which is effectively a pay raise for Amazon employees who move here from elsewhere), no capital gains tax and no corporate income tax. The city even passed an almost identical tax on employees, albeit at a much lower rate, in 2006 before repealing it during the recession.

Then there’s the public relations aspect to consider. Though it will grow after 2021, Amazon’s tax bill under the law will be pocket change compared with its $1.6 billion in profits last quarter alone. Moving employees, halting construction and reversing course all have costs, too.

Plus, does a not-super-popular corporate behemoth really want to pull thousands of jobs out of a city over being asked to fund services for the homeless? While Amazon is less reputation-conscious and less likely to be harmed by a boycott than a lot of companies are, its executives must know that throwing a hissy fit over this law would create some backlash.

Amazon could still pull jobs out of Seattle anyway. The only thing CEO Jeff Bezos loves more than expanding his company is hating taxes. When a handful of states tried passing laws requiring internet retailers to collect sales tax in 2012, his vice president for global public policy called the efforts “unconstitutional.”

A few years ago, Amazon halted plans to build a warehouse in South Carolina when local lawmakers wouldn’t grant an exemption to the state sales tax. Bezos even reportedly considered incorporating his company on a Native American reservation to avoid taxes. Just because leaving Seattle over a small tax increase would be bananas doesn’t mean it won’t happen.

This Proposal Is A Stopgap

In the past five years, Seattle has seen unprecedented growth, much of it driven by Amazon and other large companies. That has put unbearable strain on the housing market, schools and infrastructure. As the bill for services has grown, the way the city pays for them has become increasingly unjust.

Washington has the most regressive tax structure in the country. The poorest 20 percent of residents pay an average of 16.8 percent of their income in state taxes. The richest 1 percent pay just 2.4 percent. This means low-income people are effectively paying for the city’s growth.

And yet, nearly every route to fixing Seattle’s tax and revenue mess is blocked. The most obvious fix, an income tax, is illegal under the state constitution (or at least the way the state Supreme Court interpreted the constitution in 1951). Last year, the City Council passed a ”high earners tax,” but a lawsuit preventing its implementation was filed about 10 minutes later.

Alongside the (high and regressive) sales tax, Seattle relies heavily on property taxes. But, thanks to a 2001 ballot initiative, those revenues aren’t allowed to grow by more than 1 percent per year. Everything the city needs (libraries, fire stations, schools) has to be individually approved by voters. Though Seattle’s property taxes are below average compared with other cities, the constant levies and add-ons contribute to a sense among Seattleites that the city is squeezing them for more money every year without keeping up its end of the bargain.

Homelessness is the perfect encapsulation of this dynamic. As the city has grown, it’s nearly doubled its budget for homeless services. In 2016, voters approved a $290 million affordable housing levy. The city is getting more people into permanent housing than ever before.

But living here, it is immediately and viscerally clear that these efforts aren’t enough. Rising rents are pushing people onto the streets faster than the city can bring them back inside. Nearly half of the city’s homeless population is now unsheltered. Last year, a record 169 people died sleeping on the street, and the city is already on track to break the record again.

Seattle’s current situation exposes a fundamental challenge for lawmakers across the country: Solving big problems requires bold, transformational policies. What city leaders can pass in the face of structural barriers and skeptical voters, however, are merely small, incremental improvements to the status quo.

And that’s exactly what the Progressive Tax on Business is: a half-measure. No matter what Amazon decides to do, taxing employment, just like taxing cigarette purchases, will result in less of it. And the new tax probably won’t result in a significant reduction in the city’s homeless population. The city estimates the tax will produce 1,780 units of affordable housing, even though its own resolution says it needs more than 17,000.

None of that is an argument against the tax. As council member Herbold points out, this may be Seattle’s only available route toward making its tax code more progressive. Despite the fireworks at public hearings, the tax is relatively modest and is specifically tailored to affect only the companies that can afford it. Nor is it the only tax of its kind: Wilmington, Delaware; Denver; and plenty of other cities tax companies on the number of employees they have, a so-called head tax.

This week, as Seattle debated the $75 million head tax, the Chamber of Commerce released a report estimating that solving homelessness would cost $400 million. A proposal by the mayor to reduce the revenue to $40 million triggered an even more raucous committee hearing, with protesters chanting “$75 million, no extortion!” to another packed audience. The original proposal passed and will be voted on Monday, but the mayor could still veto it.

But that is the debate here, what has become possible and necessary to the city to fight over: Whether to spend 10 percent of what it will cost to solve homelessness or 20 percent.

It’s Getting Harder For U.S. Cities To Run Themselves

But the bigger question is how cities should respond to threats like Amazon’s.

The request for proposals for the company’s second headquarters stated explicitly that “a stable and business-friendly environment and tax structure will be high-priority considerations.” Cities responded in kind: Chula Vista, California, offered free land. Fresno, California, offered control over how municipal revenues would be spent. Chicago even offered to waive income taxes for Amazon employees.

The calculation these cities are making is all about the multiplier: Every job created by Amazon creates another 1.5 in “indirect employment” — consultants, chefs, schoolteachers. Except those employers won’t get any of the tax breaks. Perversely, it’s only the largest companies, the ones with the most power and the littlest need for unfair advantages, who get cities falling all over themselves to give away revenues.

It’s not even clear what Seattle gave up to entice Amazon’s most recent expansion here. The company didn’t respond to inquiries about how many employees it has in Seattle or how much it pays in city and state taxes (though late last week, “a person at the company familiar with the data” made a “rare disclosure” to The Seattle Times that Amazon had paid $250 million in local taxes — without specifying what types of taxes or where they went).

No matter where they operate, companies have every incentive to play exactly the game Amazon is playing. To shareholders, every dollar a company pays in tax is waste. The minute Amazon announces its second headquarters location, it can start pitting its host cities against each other: Hey Seattle, we’re thinking of adding another 1,000 jobs. It’s you or Pittsburgh. What are you going to give us?

This is, in fact, almost exactly what the CEO of Zillow warned this week. “We are actively trying to decide where to put the next couple hundred heads, and this is the type of thing that causes us to consider looking at putting that expansion in other cities,” he said.

The challenge of finding enough revenue to adequately run a city is only going to get worse. Excluding health care, federal grants to cities are at their lowest since 1980. Despite the growing economy, 30 states have revenue shortfalls. The Trump administration has declared its intention to cut transportation fundingand housing assistance. Without outside support, cities will become increasingly reliant on revenues from their own voters and their largest employers.

Seattle is a case study for what those fights are going to look like. The more desperate cities become, the more leverage corporations will wield over them. And, simultaneously, the more frustrated their populations will get at the constant tax raises and fee hikes.

The most depressingly insightful comment from Wednesday’s City Council hearing came from Howard Bess, a counselor for the Downtown Emergency Service Center, a homeless shelter in Seattle. He apologized for being tired; he had been up all night helping Seattle’s homeless population find an “island of relief.”

“I don’t see that anybody who is opposing this is going to die on the streets,” he said, “or not be able to pay their mortgage or not be able to wear new shoes or clean clothes. But our clients could certainly use that help.”