Realist, not conformist analysis of the latest financial, business and political news

Amazon And Seattle – If You Tax Business Maybe It Doesn’t Turn Up To Be Taxed?

This is really quite glorious. Seattle has a plan to tax large companies in Seattle a little more. OK, well, go with it if that’s what you want to do. It’s only ghastly little neoliberals like myself who will point out that there might be some effect of this. Like, perhaps, business not turning up to pay the extra tax. Guess what? The complaints now are that Amazon isn’t turning up to pay the extra tax:

On Wednesday, Amazon announced the company would halt the construction of a new building in downtown Seattle it was planning to build, jeopardizing some 7,000 jobs.

Why? Because the company opposes a tax being considered by the City Council.

The tax targets 500-600 businesses in the city that gross at least $20 million a year. The companies would be charged a “head tax” at $500 per employee. In 2021, the head tax would be replaced by a 0.7 percent payroll tax. The payroll tax would windup costing Amazon more than the initial head tax, considering Seattle Amazon employees are paid about an average of $110,000 per year, according to data from job-reviews site Glassdoor.

If you tax something you’ll get less of it.

The city estimates the tax would raise an estimated $75 million annually, with Amazon paying roughly $20 million in 2019 and 2020. One might think for a company that pulled in $1.6 billion last quarter, they could afford to help out the city of Seattle and its most vulnerable residents, especially considering the extent to which Amazon’s presence in the city has exacerbated the housing crisis there.

It’s still true that if you tax something you’ll get less of it. Tax big business in Seattle more and you’ll get less big business in Seattle.

How much less depends upon elasticity. One description of that being well, how easy is it to dodge the new tax? As Amazon can stick its new building of office drones just outside Seattle city limits it’s actually pretty easy. Therefore the reduction in business activity from the institution of the tax will be quite large – elasticity.

All of which is the truly terrible thing about ghastly little neoliberals like myself. We’re right – the universes, or at least the humans within them, do act and react in predictable ways. Demand curves do slope downwards, taxation does produce less of whatever is being taxed.

No, that doesn’t mean that we should never righteously tax businesses. No, it doesn’t mean that the richer among us shouldn’t pick up a more than proportionate part of the burden – heck, even Adam Smith agreed with that one. What it does mean is that you’ve got to be careful with how these things are done. Because there will be those reactions. Sometimes those reactions being so large as to bring about the opposite of what was intended. Like, you know, the best evidence we have about Seattle’s minimum wage rise being that it has reduced the incomes of those on minimum wage? Or the widespread evidence that legislating housing prices to be cheap makes them more expensive?

Tax Amazon more for doing business in Seattle and Amazon will do less of its business in Seattle. What’s so tough to understand about that?

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5 years ago

Another nice thing about changing your plans and building that office skyscraper outside Seattle (researching to be sure that the site is in another city that can resist any attempt by Seattle to annex it) is that that ring is where all the good nightspots will be, once Seattle waitstaff and prep cooks fully benefit from having their wages priced wrong. How nice to read about a place where someone other than Republicans are eating their own.

5 years ago

In the 1960s a lot of the arguments against Sheffield expanding its city boundaries boiled down to “I moved my business here to get *OUT* of the city”. I knew a family that moved twice to get out of the city’s tax base each time the boundaries extended. Naturally, they still worked and shopped within the city boundaries and used the city’s tax-funded transport system.

5 years ago

You’ll never be able to create a just and progressive society so long as you have so much personal and business mobility. A system of internal passports, residence permits and restrictions on movement could help set this right. Seattle might just be the place to try it.

Jason Lynch
Jason Lynch
5 years ago

Given the complaint that “Amazon’s presence in the city has exacerbated the housing crisis there”, surely Seattle should be delighted that this encumbrance on the rights of all residents to cheap accommodation is leaving?

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