Gaming Out the Latest “Amazon Tax” At the Start of an Unprecedented Recession

Let’s start out by stating the obvious: Barring a miracle, the “Amazon Tax” proposed by Seattle council members Kshama Sawant and Tammy Morales will not become law in its current form. The bill, which the council will continue discussing into next month, would slap a 1.3 percent payroll tax on companies with more than $7 million in payroll expenses, raising more than $500 million a year from about 800 Seattle companies.

Sawant and Morales decided to designate the bill as an “emergency,” which makes it invulnerable to a future voter referendum; the tradeoff is that they need 7 votes for approval, plus the support of Mayor Jenny Durkan, since the city charter requires mayoral approval of all emergency legislation. In other words, even if Morales and Sawant got five other council members on board—unlikely, if comments at Wednesday’s budget committee from council members who are ordinarily sympathetic to tax-the-rich arguments are any indication—the mayor could simply let the proposal die without a formal veto. Durkan fought Sawant’s last effort to “tax Amazon,” a $275-per-employee tax on employees of companies with gross receipts of more than $20 million, and is implacably opposed to this one as well.

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There is also some question whether the proposal complies with an emergency order issued by Gov. Jay Inslee in March, and extended this week, barring public agencies from adopting or discussing legislation unless it’s “routine” or “necessary to respond to the COVID-19 outbreak and the current public health emergency.”

Despite all that, it’s still worth taking a look at the legislation, which dwarfs the “head tax” the council passed in 2018, then overturned, by a factor of more than ten. What would happen if, against all apparent odds, the bill were to pass in its current form?

In its first year, 2020, the legislation would fund cash payments of $2,000 over four months to 100,000 low-income Seattle residents to respond to the COVID crisis. (This is the part of the bill most obviously compliant with Inslee’s order). Because revenues from the tax wouldn’t be available until 2021, the bill would fund these checks by taking a short-term loan from six city funds that, according to a companion bill, have “sufficient cash” to contribute up to $50 million each. Those funds would be paid back in 2021, plus $5 million interest.

From then on, assuming all the assumptions that went into the proposal remain correct, the tax would pump more than $500 million a year into funding for “social housing” for people making between 0 and 100 percent of the Seattle median income, operational support for permanent supportive housing, and funding to implement the Green New Deal, which includes strategies like weatherization and converting buildings from gas to electric heat. The amount of funding from the tax would be less, of course, if the number of businesses spending more than $7 million annually on payroll declined because of the recession.

Even if the legislation is safe from any future referendum, it would still be subject to lawsuits, and there’s no guarantee that litigation over the tax would be resolved quickly, or in the city’s favor.

The $200 million “interfund loan” would come from six voter-approved levies and taxing districts, including the Move Seattle levy; the Families and Education Levy; the Seattle Parks District; and the Library Levy. Some of these funds do have “sufficient cash” to give up $50 million in the short term, but it’s worth taking a look at why that is, and how this might impact their ability to fund promised projects.

The Low Income Housing Fund, which receives money from the Housing Levy and payments from developers through the Mandatory Housing Affordability program, has more than $146 million on hand because property taxes have continued to flow in to fund future projects that are not yet off the ground. That money is in the city’s “bank,” but it’s already spoken for. Other funds, such as the Library Levy Fund, the Move Seattle Fund, and the Parks District Fund, have significantly less than $50 million lying around. The Parks District fund, in fact, is actually in the red; the 2020 budget makes up a $6 million shortfall with an interfund loan, to be repaid as more revenues come in. Some of these funds simply aren’t that big to begin with—the library levy, for example, is supposed to raise just over $200 million, total, over seven years,

None of that might matter if the $200 million could be repaid in just one year as proposed. But even if the legislation is safe from any future referendum, it would still be subject to lawsuits, and there’s no guarantee that litigation over the tax would be resolved quickly, or in the city’s favor. If funding from the tax didn’t come through quickly, or ever, it’s unclear how the $200 million would be repaid. If, say, the Library Levy found itself short $50 million, that could significantly impact the library’s ability to provide services promised to voters—especially as the recession eats into the city’s tax base.

There are also other interests competing for that money. As city budget director Ben Noble noted in his grim revenue forecast presentation Wednesday, the city may have to dip into some of the dedicated levy funds to pay for basic services—using the parks levy to fund basic maintenance instead of new capital projects, for example. “If the base levels of funding for which the levies were intended to be additive are no longer feasible, the question is whether it would make sense to use the levy funds for operational purposes,” Noble told the council Wednesday.

Ordinarily, the city’s general fund pays for basic services, growing or shrinking marginally from year to year. However, in a recession—particularly a rapid recession, like the one caused by the current economic shutdown—the fund shrinks dramatically, because it is funded largely by sales and business and occupation taxes that take a dive when the economy slows down. The city’s projections show a general-fund shortfall, just in 2020, between about $100 million and $186 million (the overall shortfall, which includes funds from levies and other sources, is projected to range between $210 million and $300 million). During last recession, then-mayor Mike McGinn had to cut the general-fund budget by 7 percent. Tying up levy funds for a temporary loan on the gamble that revenues from a contentious tax will be available right away seems like a risky bet.

There are also several scenarios in which other city council members might propose alternative, scaled-back bills that would stand a better chance of passing; budget chair Mosqueda, for example, is reportedly working on a proposal that would exempt businesses with employees who make less than a certain income threshold (targeting the tax on wealthy tech companies and their workers, for example, rather than restaurants or hotels with many low- or moderate-wage employees; such a bill might also include exemptions for certain industries and be focused on funding food-security programs, child care, and wage assistance, as Mosqueda suggested at Wednesday’s meeting.

Another alternative—one that would get around the requirement that Durkan sign off on the bill—would be to remove the emergency clause from the legislation, allowing it to pass on a 6-3 vote. (Ordinary legislation requires five votes to pass, but six to override a mayoral veto). This would lead to a referendum and an ugly battle at the polls—a do-over for the aborted “No Tax On Jobs” referendum campaign backed by Amazon, Starbucks, and other big companies in 2018. The objection to this idea would be that big business can simply buy votes by barraging voters with misleading information, as supporters of the previous “Amazon tax” charged in 2018. On the other hand, if a veto-proof vote is the only way to get a payroll tax to pass, and if it’s going to the polls anyway, perhaps the best solution is to send it straight to the ballot.

5 thoughts on “Gaming Out the Latest “Amazon Tax” At the Start of an Unprecedented Recession”

  1. agree with previous comment. i think risking already at-risk levies further is not responsible. really glad to have access to and support this kind of analysis. thank you for your work.

  2. Outstanding, explicit, informative reporting. Glad to support you. Awesome that you have established your own venue not reliant on traditional media though noted that Huff Post is publishing you. Keep it up. Much appreciated.

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