Seattle City Council votes in committee to advance new tax on big businesses

The Seattle City Council took a major step Wednesday toward adopting a new tax on big businesses, voting in a budget committee meeting to advance a proposal expected to raise more than $200 million per year for affordable housing, business assistance and community development.

A final vote by the full council is planned for Monday, and passage would mark a turning point at City Hall.

Only two years ago, the council — under intense pressure from corporate critics such as Amazon and the prospect of a voter referendum — repealed a $47 million-per-year big business tax enacted less than a month before.

Dubbed “JumpStart Seattle” by lead sponsor Councilmember Teresa Mosqueda, the new tax would target large companies with highly paid employees, whereas the 2018 “head tax” would have been based on total employees.

In last year’s council elections, five candidates defeated opponents backed by big business groups. This year, the COVID-19 crisis and Black Lives Matter protests have shaken up local politics, deepening inequities and highlighting community needs.

A number of neighborhood business organizations and industry groups sent a letter to the council before Wednesday’s vote opposing the tax as ill-advised as Seattle’s economy grapples with the pandemic.

But dozens of unions, community groups, nonprofits and religious groups have endorsed the JumpStart plan. Nearly everyone who spoke during a public-comment session at Wednesday’s meeting urged the council to act, noting the pandemic has exacerbated Seattle’s homelessness and housing challenges. The meeting was held remotely.

“I do think the sentiment of the public has drastically changed” since 2018, Council President M. Lorena González said Wednesday.

Under the JumpStart tax, companies with annual payrolls of more than $7 million would be taxed on their pay to employees making more than $150,000 per year. As amended in the budget committee Wednesday, the tax rate would range from 0.7% to 2.4%, with tiers for various payroll and salary amounts.

For example, a company with payroll more than $7 million and one employee making $200,000 would pay a tax of 0.7% on $200,000 — or $1,400.

The 2018 head tax, in contrast, would have applied to companies with annual gross revenues of more than $20 million and charged $275 per employee, no matter their salary.

Grocery stores would be exempted under JumpStart, and the council may act Monday to also exempt some hospitals and nonprofits.

“Our community is hurting. Our economy is tanking,” Mosqueda said when she introduced her proposal last month. “We cannot wait for the feds or the state to step in. We have to act now to help Seattle.”

Wednesday’s vote was 7-2. Mosqueda was joined by council members González, Kshama Sawant, Tammy Morales, Lisa Herbold, Dan Strauss and Andrew Lewis. Alex Pedersen and Debora Juarez voted against the bill, arguing the issue should instead be sent to the November ballot for voters to decide.

Mayor Jenny Durkan agrees with Pedersen and Juarez on that point, and she worries a new Seattle tax could cause companies to relocate elsewhere in King County, a Durkan spokeswoman said after the committee meeting. The mayor could veto the tax; her veto could be canceled by six council votes.

Mosqueda has proposed using the JumpStart tax to underwrite $86 million in coronavirus relief this year, to buttress city services as Seattle emerges from the pandemic in 2021 and to fund housing and more in the long term.

The coronavirus-relief and long-term spending plans are contained in separate bills. Mosqueda, who chairs the budget committee, said the committee would consider those bills July 15. The tax wouldn’t take effect until next year; to provide coronavirus relief this year, the city would borrow from its emergency and rainy-day funds.

During Wednesday’s meeting, council members approved a Sawant amendment eliminating a 10-year sunset clause in the JumpStart plan.

But they inserted a clause meant to ensure that the Seattle tax would halt if the state or county subsequently were to adopt a similar tax.

They also approved a Mosqueda-Morales amendment adjusting upward the tax rates in the bill; the changes could yield an additional $40 million per year.

Estimates for how much the JumpStart tax would raise are somewhat shaky, because of imprecise payroll data and an unstable economic situation. But the council’s analysts believe it could generate at least $214 million in 2021.

Council members rejected Sawant amendments that would have pushed the sum higher still for affordable housing in the Central District and green-infrastructure programs. Dozens of religious leaders wrote a letter this week backing the Central District amendment as a way to battle gentrification.

Earlier this year, Sawant and Morales proposed taxing big businesses on pay to all employees, saying it could raise $500 million a year. That plan was eclipsed by Mosqueda’s, but Morales credited Sawant and local activists with pushing the council to address the issue.

She said the JumpStart plan would fund community projects and would start to reform Seattle’s regressive tax structure, which is built on property and sales taxes that hit poor people hardest.

“There has never been a greater need … or a more opportune time to invest in Black and brown communities for people who have repeatedly been harmed by our city,” Morales said.

Sawant described the JumpStart tax as inadequate but necessary, attributing Wednesday’s vote to “our powerful, multiracial movement.”

“The movement is the only thing that made this victory possible,” she said, mentioning the “Tax Amazon” campaign that has been collecting signatures to put a measure on the November ballot in the absence of council action.

The mayor wants to review the spending plan for the JumpStart tax, partly because she and the council are trying to plug a massive 2020 budget hole opened up by the COVID-19 emergency, said Kelsey Nyland, the Durkan spokeswoman.

Durkan also “doesn’t think City Council should expedite one of the largest taxes ever proposed in Seattle, especially in the midst of an economic downturn not seen since the Great Depression,” Nyland said.

“Many workers at the companies (that would be) impacted by this tax are working from home. As employers make decisions on when and where to return workers, Mayor Durkan wants jobs and taxes to return to Seattle,” Nyland added. “She continues to believe that a statewide or countywide progressive payroll tax is better. ”

Durkan earlier this year helped craft a state House bill that would have allowed King County to adopt a tax similar to the JumpStart plan. That bill died after some companies demanded it include a clause prohibiting Seattle from adopting its own version.

The mayor is interested in a Seattle income tax, Nyland said. A recent court ruling may have opened the door to a 1% city tax on household incomes; Durkan hasn’t yet proposed that legislation.