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New proposal for head tax targets businesses making $20 million per year

SEATTLE — Kevin Hooe, now staying in a shelter, says Seattle's big businesses could help the homeless.

"They've got billions and billions of dollars," Hooe said as he stood beside a group of tents on the Seattle waterfront.

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The idea of taking money from the companies profiting during Seattle's boom to help those left out is behind the newest version of an employee head tax unveiled by four City Council members on Friday.

"Yes, we're asking our largest businesses in town, the ones that are doing the best, to contribute to this, but we think that's a fair contribution," said Council Member Mike O'Brien.

O'Brien is proposing the new head tax along with Council Members M. Lorena Gonzalez, Lisa Herbold and Teresa Mosqueda.

It calls for a new tax on businesses making at least $20 million per year.

It would start in 2019 as an employee-hours tax of $500 per worker, or 26 cents per hour. 

"If you're paying an employee $50 an hour at a tech company, it's going to be $50.26 as the cost," O'Brien said.

O'Brien said the tax would apply to 3 percent of Seattle businesses and raise $75 million per year.

Of that, 75 percent would go to affordable housing, 20 percent to emergency services for the homeless and 5 percent would be spent on collecting the tax.

Jon Bridge of Ben Bridge Jeweler questions if the money would be well spent.

"There need to be concrete plans and dollars attached to those plans before you start taxing. They're doing it in a backwards fashion," Bridge said.

Bridge wonders if the rising cost of doing business in the city will lead his company to move its headquarters outside Seattle.

"We're going to have to think twice about where cost effectiveness exists," Bridge said.

KIRO 7 asked Marilyn Strickland, who heads the Seattle Metropolitan Chamber of Commerce, if businesses will be driven out of town.

"I can't say I'm predicting this big exodus, but people will think twice about whether to renew leases or whether to expand in Seattle or whether to grow," Strickland said.

Strickland served eight years as mayor of Tacoma.

She says the City of Seattle has plenty of money already, much of it paid by businesses through existing taxes.

"I know a little bit about municipal finance and if putting more funds toward homeless services or trying to house the homeless is a priority, they can look into their abundant treasury and find ways to make that happen," Strickland said.

When University of Washington professor of public policy and governance Jacob Vigdor reviewed the proposal, he immediately seized on the description of it being a "progressive tax on business."

"This tax is actually the opposite of a progressive tax. It takes the highest percentage of income from the lowest wage earners," Vigdor said.

Vigdor said 26 cents per hour is a much bigger percentage of a janitor's income than a CEO's.

Even though the tax is levied on the employer, not the employee, Vigdor predicts most companies will lower wages, passing on that cost to their workers.

"What the research base shows, and study after study has documented this, is when you have a tax on jobs, the people who end up paying the tax are the workers," Vigdor said.

The proposal unveiled Friday calls for starting with an employee-hours tax in 2019, and replacing that with a payroll tax in 2021, which would tax higher salaries more than lower ones.

The legislation will be formally introduced on Monday, with plans for a full council vote in mid-May.

Mayor Jenny Durkan released a statement saying that she's glad small businesses were exempted from this tax proposal, and that the city needs action to address the homelessness crisis and protect the economy.