Don C. Brunell: Bad Labels Tough to Shed

The battle in Seattle over the city council’s imposition of a head tax on large companies is generating disparaging labels which local elected leaders likely will come to regret.

As a mayor, the last things you want are “anti-business” or “job killer” red letters stamped on your city’s investment opportunity portfolio.

A head tax is a “job killer” because it discourages companies from hiring full-time employees and encourages employers to replace people with computers and machines.

According to the Puget Sound Business Journal, businesses in Seattle already pay the highest taxes in the area. A City of Seattle report obtained by the Journal found a hypothetical company with 200 full-time employees and $100 million in taxable gross revenue would pay $419,000 in Seattle compared to Bellevue ($189,600) and Redmond ($22,400).

Then the city council just unanimously approved an annual $275 per full-time employee assessment to fund homeless programs and affordable housing. The tax, which would raise $237 million over five years, is now the subject of an employer-led referendum to abolish it. It would cost Amazon an estimated $11 million annually.

Amazon is looking for a second corporate headquarters (HQ2) outside of Seattle. It is worth $5 billion and could be bigger than the original head office. Dallas Business Journal reported it could employ 50,000 people with pay as high as $100,000 or more.

There is no question about the gravity of Seattle’s homelessness. A PSBJ study estimated the region is spending more than $1 billion on homelessness. Homelessness is a universal issue in which cities vying for Amazon’s HQ2 face.

In Seattle, a 2017 homeless census showed just under 12,000 compared with 4,100 in Dallas, according to data collected by Metro Dallas Homeless Alliance. (Dallas is believed to be on Amazon’s finalist list).

But railing against Amazon CEO Jeff Bezos and large employers does not solve the problem. It only exacerbates it and leads to “anti-business” and “job killer” labels which are hard to shed. Just ask officials in Massachusetts.

In the early 1970s, Massachusetts became known as “Taxachusetts” because of its high taxes. Commonwealth leaders embarked on a long road to change that perception.

According to the Massachusetts Budget and Policy Center (MBPC) in 1977 that state had the nation’s third highest level of state and local taxes as a percent of personal income—13.8 percent.

“Since the late 1970s, tax policy in the Commonwealth has changed dramatically,” MBPC reported. In 1980, a statewide proposition reduced property taxes and then in the 1990s, the state significantly reduced income tax rates.

As a result, between 1977 and 2011, Massachusetts reduced taxes more than all but one other state and dropped the percentage of state and local taxes as a percent of personal income to 10.8 percent.

The more friendly business climate made a huge difference. GE, frustrated with Connecticut’s high taxes and stifling regulations, moved its corporate headquarters to Boston in 2016.

Joe Brennan, president of the Connecticut Business and Industry Association (CBIA), said, “If there’s one single takeaway from General Electric’s decision to relocate its headquarters, it’s that Connecticut’s policymakers cannot view it as an isolated case. The conditions that led to this decision exist for many companies in Connecticut.”

“That constant cycle of budget deficits followed by tax hikes, coupled with growing costs, continue to undermine business confidence,” Brennan concluded.

While corporate headquarters moves are problematic, closures, businesses deciding to build elsewhere, and people losing their jobs are much more harmful.

The bottom line is investors don’t want to locate where they are unwanted or can’t afford to operate. Unfortunately, as Massachusetts learned, bad labels are written with indelible ink which fades slowly.