By Brad Polumbo
The city of Seattle is already struggling. With a new tax on jobs, its city council seems determined to make things even worse.
The COVID-19 pandemic and local government lockdowns economically decimated Washington state in March, with Seattle hit especially hard in the early days of the virus’s spread. In the immediate aftermath of the COVID-19 outbreak, Seattle saw the biggest spike in unemployment of any city in the country. The city’s economy continues to flounder amid the pandemic.
On top of all this, Seattle descended into chaos and controversy on June 8 when Antifa and other radical left-wing activists seized control of a neighborhood and declared themselves the “Capitol Hill Autonomous Zone.” Like so many before it throughout history, this utopian social experiment sadly turned deadly and ended 24 days later after multiple shootings.
Nonetheless, the Seattle City Council has decided that now is the right time to impose a new tax burden on its residents. On July 6, the council passed the so-called “JumpStart” tax, which specifically targets middle-class jobs.
The council’s new tax will affect employees at medium-to-large companies, but not most small businesses. Applied to businesses with a total payroll of $7 million or greater, it will impose an additional 0.4 percent to 2.4 percent payroll tax on jobs that pay an annual salary of $150,000 or higher. This is on top of already steep federal and state payroll taxes.
Councilwoman Teresa Mosqueda promises that the new tax will create a “more robust and resilient economy.” Meanwhile, her fellow Councilwoman Kshama Sawant called it a “victory for working people.” Both claim the tax will raise $200 million in revenue for what they argue are much-needed social service programs such as housing subsidies.
It’s not surprising to see Sawant leading this class-warfare charge. She’s an avowed socialist—and isn’t shy about it.
The city official recently railed against Amazon CEO Jeff Bezos in a widely shared video where she promised that she and her supporters are “coming to dismantle the deeply racist, sexist, violent, utterly bankrupt system of capitalism” and replace it with “a socialist world.” Sawant has also promised to “take into public ownership the top 500 corporations and banks that dominate the US economy.”
After passing the "Amazon Tax," Seattle City Councilwoman Kshama Sawant went on this unhinged rant.
She threatens to seize control of the Fortune 500 and overthrow the "racist, sexist, violent, utterly bankrupt system of capitalism."
If you oppose her? "We are coming for you." pic.twitter.com/2L17D6wScp
— Christopher F. Rufo (@realchrisrufo) July 7, 2020
But don’t let socialist rhetoric fool you into thinking that this tax is actually a “victory for working people.” It’s not—it’s a tax on working people. Think about it: This isn’t a corporate income tax, a tax on investment, or otherwise a tax on “capitalists,” aka business owners and entrepreneurs. By taxing payroll, the Seattle City Council is imposing taxes that fall directly on working professionals.
Sure, these are workers somewhat higher up on the income scale—but not by as much as you might think at first glance.
According to Payscale.com, the average salary in Seattle is $79,000. It’s the fifth most expensive place to live in America, with the highest rents anywhere in the country outside of California. With this context in mind, workers making $150,000 are far from members of “the 1%.” More realistically, many of the targets of this new tax are middle class by Seattle standards. So while the tax isn’t massive, it does showcase an important trend: In their class warfare charge, left-wing officials aren’t constraining themselves to “soaking the rich,” but are quickly reaching down the income ladder for fresh wallets to tap.
This is exactly what Austrian economist Ludwig Von Mises predicted in his seminal work Human Action. He warned that middle-and-working-class people who sought to support massive government spending by “eating the rich” would quickly find themselves on the chopping block.
Mises said those who advocate massive redistribution operate under what he called “the Santa Claus principle”:
“The idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population is a fund which can be freely used for the improvement of the conditions of the less prosperous. The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor.”
But there are limits to how much the rich can be effectively soaked through confiscatory policies like Seattle’s “Bezos Tax.” For example, in Mises’s own time:
“In the United States the recent advances in tax rates produced only negligible revenue results beyond what would be produced by a progression which stopped at much lower rates. High surtax rates for the rich are very popular with interventionist dilettantes and demagogues, but they secure only modest additions to the revenue.”
This economic phenomenon is what was later called “the Laffer Curve.”
Past a certain point, raising taxes yields declining tax revenue. Why? Because the more you tax a certain human behavior, the less those humans will want to do that behavior.
For example, the more you tax well-paying jobs (as Seattle is doing), the less employers will want to offer them.
Revenue streams from soaking the super-rich dry up pretty quick. So the “soakers” eventually must resort to soaking the less rich, and eventually the middle and working classes. Eventually, a point is reached where, as Mises explained:
“Every penny of additional government spending will have to be collected from precisely those people who hitherto have been intent upon shifting the main burden to other groups. Those anxious to get subsidies will have to foot the bill themselves for the subsidies.”
This reality exposes the unsustainability of class warfare. As Mises concluded:
“An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole doctrine of interventionism collapses when this fountain is drained off. The Santa Claus principle liquidates itself.”
Mises wrote Human Action in 1949, but the principle is timeless.
Just consider the fact that Rep. Alexandria Ocasio-Cortez’s proposed taxes on “the rich” would only pay for a tiny fraction of her “Green New Deal,” even according to the most optimistic projections. Seattle’s would-be social planners on the city council are now running up against the same inconvenient reality. This is why they are now increasingly reaching into the pockets of the middle class to fund their desired government programs.
And of course, the tax could seriously hurt the economy, too.
“As the region enters a deep recession and faces near-record job losses, the city council will be sending tax bills to companies across multiple sectors that have their doors closed and have been forced to layoff employees,” the business organization Downtown Seattle Association said in a statement to a local news outlet. The Wall Street Journal editorial board similarly warned that “The tax will stifle economic upward mobility, since employers will have an incentive not to raise pay above $150,000.”
Worse, in an infuriating but sadly typical twist, the Seattle City Council exempted all government employees from their new tax. That’s right: The supposedly benevolent socialist city officials who thrust this upon their constituents made sure to carve out a giant exception for their peers on the taxpayer dime.
According to OpenTheBooks.com, 601 city employees in Seattle earned $195,000 or more. Analysts found that “tree trimmers lopped off $160,604; the chief librarian made $197,704; electricians earned $271,070; electrical lineworkers made $307,387; and police officers earned up to $414,543.” The new payroll tax will not apply to any of these government employees or their peers otherwise drowning in taxpayer cash.
So, no, the city council’s new tax is most certainly not a “victory for working people.” It’s a tax imposed on working people by politicians who made sure to spare the government class from sharing any of the burden.
Brad Polumbo is a libertarian-conservative journalist and the Eugene S. Thorpe Writing Fellow at the Foundation for Economic Education.
Image credit: YouTube screenshot from Q13 FOX