Opinion | Fernando Martinez
The Seattle City Council is proposing a Seattle Head Tax of $0.26042 per employee hour worked in Seattle from companies generating over $20 million in annual revenues to provide housing and support services to over 8,500 individuals who are experiencing homelessness. Seattle Homeless and Housing Affordability problem that everyone, business, community, and public agencies acknowledge. However, from a business perspective, more specifically the Minority, Diverse, and Small Business (MDSB) perspective, unintended consequences may be risky at best and can certainly be destructive.
There are many factors which result in homelessness: high cost and shortage of housing; literacy, education and joblessness; domestic violence; mental illness and chemical dependency; lack of support services; legal barriers; and factors stemming from prejudices against race and ethnicity. We are all understanding of the problem and certainly wish to minimize this level of “homelessness to be rare, brief, and one-time” (Recommendations for the City of Seattle’s Homeless Investment Policy: The Path Forward – Act Now, Act Strategically, and Act Decisively, Barbara Poppe and Associates, 2016).
In fact, the Seattle area spends over $1 billion every year on homelessness. What is not certain is how throwing money at a long-standing problem to keep doing the same thing over and over again will solve the issue. There is a need for a true partnership where business supports the community and the community supports business.
The Seattle Head Tax will affect companies that are headquartered in Seattle and elsewhere but do business in Seattle. The City Council expects to raise $75 million in tax dollars in 2019 and 2020. In the year 2021 – 2025, Head Tax will convert to Payroll Tax calculated at a rate of 0.7 percent This Head Tax poses a real risk to MDSBs:
1. Supply Chain Effect: At the first level, most supply chains manage their costs through negotiations and supplier rationalization. Supplier rationalization results in retention of suppliers that meet certain thresholds; and, a reduction of suppliers that do not meet those thresholds. Many of the large companies being targeted with the Seattle Head Tax will rationalize their supply chain to mitigate the cost of doing business in Seattle. This will directly impact MDSBs. The risk to MDSBs is loss of contracts and revenues.
2. Supplier Rationalization is exacerbated: At the second level MDSBs will rationalize their supply chain. In Seattle we support Minority Businesses that generate over $20 Million in annual revenue. To protect against their losses and remain profitable, supplier rationalization will take place detrimentally affecting over 1,270 employees. 44% of those employees are ethnic minority.
3. Triple Cost Effect: The entire cost burden is placed on the Business:
a. Head Tax of $0.26042 per hour worked on a quarterly basis,
b. B & O Tax (Range from 0.00222 – 0.00427) at the established rate based on their industry,
c. Administrative and compliance cost burden legislatively imposed onto the business (depending on the size of business cost burden can significantly impact expenses).
In addition to the direct risk to MDSBs, the indirect risk to Seattle and our regional economy is significant. To illustrate this impact on our regional economy, the correlation between direct and indirect output is presented in the 2007 Washington Input-Output Table (revised 2015).
As stated above in bullet point #2, the Head Tax can directly affect over 1,270 Minority Business Employees of which 44% are ethnic minority. The Head Tax creates an indirect risk to the additional 2,557 jobs created directly by MDSBs. Furthermore, the Head Tax directly puts our local and regional businesses at risk. For every $1 output by the targeted firms an additional $1.83 is indirectly generated in wages for goods and services provided. At risk is $2.83 per every $1 in reduced spend by the targeted Head Tax firms. The economic effect this Head Tax is at risk of creating may in fact negatively affect employees and move them directly into the problem we are trying to solve – increase homelessness.
It is true, our city and region have a significant homelessness and housing affordability problem. It is a common issue that must be addressed by both the Private and Public Sector. Throwing more money at the current spend of over $1 billion a year within the region is not solving the problem. Adding an additional $75 million to that budget will not solve the problem either. What the Head Tax will in fact do, is affect the livelihood of Minority, Diverse, Small Businesses, and their employees. The result of the Head Tax is the creation of future risks and problems.
Fernando Martinez leads the Northwest Mountain MSDC as President and CEO and is a member of the NMSDC Presidents' Serve Corporate Members Committee (SCM). He is responsible for helping develop minority business enterprises (MBEs) into organizations that can support the specific needs of the Council’s corporate and public agency members. The above information is intended solely for the personal non-commercial use of the user who accepts full responsibility for its use. While we have taken every precaution to insure that the content is both current and accurate, errors can occur. The information provided is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice or service. For our legal disclaimer, please visit www.nwmtnmsdc.org/disclaimer.