Question

Mindless in Seattle

As unemployment soars, the City Council wants to tax job creation.

By The Editorial Board

April 30, 2020 7:17 pm ET

The economy is on life support, but that isn’t stopping the Seattle City Council from trying to soak employers with a new tax on hiring. The wizards seem not to have heard that when you tax something you get less of it.

The proposal is a reprise of the council’s 2018 tax on each new hire that was repealed amid public opposition. The new proposal “is 10 times larger than the 2018 version, and it’s also in an economy that’s about 1,000 times worse,” says James Sido of the Downtown Seattle Association, which represents business and nonprofits.

Co-sponsors Kshama Sawant and Tammy Morales want to raise $500 million a year with a 1.3% payroll tax on most Seattle businesses with $7 million or more in payroll. The Seattle Chamber of Commerce says this would hit some 800 businesses. The minimum liability would be $91,000, but many companies would see a six-figure hike or more.

Businesses would be assessed based on the prior year’s payroll, but revenue has cratered this year amid the pandemic. Amazon (Links to an external site.) will be fine, but businesses on the margin that have been forced to lay off or furlough employees may not bring them back if it means crossing that $7 million payroll threshold. The tax would discourage smaller companies from growing in Seattle.

Ms. Sawant blames corporate greed for lost jobs: “As long as capitalism is in existence, the billionaire class will extract its vengeance for whatever we can do as far as reforms.” Yes, trying to stay in business is now “vengeance.”

Most of the new tax revenue would go to public housing for those earning up to 100% of area median income, which was $85,562 in Seattle from 2014-2018, according to the U.S. Census Bureau. The tax would also pay for Green New Deal initiatives like converting homes from natural gas to electricity.

Councillors Sawant and Morales are pushing for a vote in mid-May, but support isn’t unanimous. One risk is that their fellow far-left councillors will pass a scaled-down version of the business tax and portray it as moderate.

The personal-finance website WalletHub reported this week that Seattle is the hardest hit city in the U.S., with unemployment rising 105.92% between January and March. Only a socialist would think now is the time to further punish job creation.

Economic Issue: Taxes Matter

Discuss the this proposal in terms of ceteris paribus conditions for supply.

Answer 1

The proposal seems detrimental to economic growth as taxes on hiring implies restricting smaller companies from more expansion and recruitment and thus layoffs amd unemployment can soar causing slump in consumption and aggregate demand and thus real GDP may fall substantially.

Proposal can have negative implications on job market and raise labor union issues as paycut may also rise and thus lead to further aggravated issues in future.

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