By Kevin Judge | June 18, 2019
There is a good reason that it is not called the “Theory” of Supply and Demand. It is a “Law” because it is a reliable predictor of how a change in one feconomic actor will affect others. For example, when you tax something you get less of it because the increase in cost reduces demand. It’s predictable!
Unfortunately, the Seattle city council could not grasp this. They insisted that a tax on employee hours worked or large businesses would produce a lot of revenue without an impact on employment. Before they could even vote, Amazon announced it was considering backing out of a construction project that would have created jobs 7,000 construction jobs and pumped money directly and indirectly into the local economy
The original proposal in April would have taxed companies with more than $20 in net income about $500 per employee. In response to Amazon’s strong objections and intention to reverse expansion plans in Seattle, the tax was reduced to $275 per employee and passed.
But it did not end there.
Fac
ing a referendum effort to overturn the tax claimed to have more than enough signatures to put the tax to a public vote, the city council voted to repeal the law on June 12th.
The City needs the money to address an increase in homeless and sharply rising home prices. Many on the Council believe Amazon is to blame for the problem because it is responsible for a boom in jobs in the area that has it stimulated. Rents in the city have risen 42 percent over the past seven years, fueled by the growth in high wage earners.
This ignores the fact that this also caused a surge in property tax and sales tax revenues, most notably from its largest taxpayer Amazon.
The company and its founder Jeff Bezos are portrayed as the villain here. One Council person said Amazon has such deep pockets it should be ashamed to be quibbling over a mere $10 to $20 million dollars. Such a view ignores the fact that Amazon is responsible to its shareholders, many of which are pension funds and small investors through mutual funds.
The simple fact is that employers have options and cannot be compelled to locate in Seattle. The law would make Seattle one of the very few cities with this type of tax and the rate would likely be the highest. Such taxes are rate because they kill jobs. Even Chicago’s very liberal mayor Rahm Emanual came to the same conclusion and scrapped it version of the job crusher.
Elsewhere around the country, states and localities are tripping over themselves to be the beneficiaries of an Amazon plan for a $5 billion second HQ. They say it will be as big or bigger than its first, employing 50,000 in jobs that pay $100,000 or more. Most local government think this is something to bid for, not push away!
I also believe the Council was inflicted with a common misunderstanding about the nature of the so called “Jobs Market”. Too many people are under the misconception that the job is the product being offered. Under this reasoning, the company is supplying jobs and such a tax as proposed is simply analogous to a sales tax. Since the employees badly need jobs, the decline in jobs demanded will be negligible.
Wrong! Wrong! So very wrong!
The reality is that it is better described as a Labor Market, where the product is the labor of the prospective employees. Companies are not in the business of supplying jobs. Their business have needs that requiring them to purchase labor. Raise the cost of labor and businesses will purchase less of it. Employers may reduce the need for labor through automation, but they can also move jobs to lower cost locales and in some cases lower cost countries. Both have been happening because a business wants costs as low as possible, but increasing the cost of labor by governement action will only accelerate the existing trend.
The Council wanted the money to build affordable housing. Perhaps they could try other ways to make housing affordable, such as reducing property taxes and making it easier for home builders to produce new housing. Don’t hold your breath!