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Homeless encampments like this one in Seattle prompted a tax proposal that big businesses are endorsing.

Photo: Bloomberg via Getty Images
Power

‘Amazon tax’: More pressure on tech to pay for problems it magnified

Support for a homelessness tax in Washington state shows how pressure on companies has gotten too big to ignore.

Amazon's Seattle workforce was already the size of a small city when the e-commerce giant announced last week that it wants to add 15,000 jobs next door in Bellevue. If state legislators adopt a new business tax designed to counteract the region's spiraling homelessness crisis, the company might pay a premium for the territorial expansion.

That's OK with Amazon. For now.

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Amazon and fellow big Seattle employers Microsoft, Zillow, Expedia, Alaska Airlines, Costco and Starbucks sent a letter last week to state lawmakers tentatively endorsing the new tax measure, House Bill 2907. It would authorize local governments that serve more than 2 million residents (read: Seattle's King County) to implement a new 0.1 to 0.2% payroll tax for employees of large companies who earn salaries of at least $150,000.

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The tax could generate up to $121 million a year in King County for affordable housing, homeless shelters and related social services — still a fraction of the $400 million or so it would cost annually to house the county's more than 11,000 homeless residents, according to a 2018 McKinsey estimate.

Homelessness used to be a sign of urban decline. Now it's a sign of urban success. — Erik Houser, Campion Advocacy Fund spokesperson

Given the history of clashes between Seattle and Amazon over how much the company should pay for the side effects of its rapid job growth, there's also the question of whether businesses are getting on board with the idea of new regional taxes to avoid more-aggressive alternatives at the local level. But what is clear is that the policy debate in Washington is a striking example of a struggle playing out in many burgeoning urban tech hubs, fundamentally reshaping the relationship between companies, local governments and communities.

"It's no secret that the tech industry has been extremely beneficial for Seattle and King County, but that growth has come with corresponding growth in homelessness," said Erik Houser, a spokesperson for the Campion Advocacy Fund, a Seattle lobbying and philanthropic grant-making group. When combined with stunted housing construction, he said, the flood of affluent new workers has created a perverse reality: "Homelessness used to be a sign of urban decline. Now it's a sign of urban success."

In San Francisco and in Google's hometown of Mountain View, both Silicon Valley poster children for unaffordable housing, voters last year approved similar taxes. From San Jose to Denver to Nashville, policymakers are debating the feasibility of passing the tab for housing and other collapsing social infrastructure onto job creators who are flying high even as thousands of people sleep outside in otherwise prosperous cities.

Tech companies are increasingly trying to get ahead of these issues, knowing that their plans for expansion may hang in the balance, and figuring that it's better in this climate to engage on tax hikes than resist. They are negotiating extensive community benefit agreements for large campuses. Amazon is building a homeless shelter on its downtown Seattle campus. Apple committed $2.5 billion to building affordable housing last year. And Google contributed $50 million to a tech-specific fund started by the nonprofit Housing Trust Silicon Valley.

"What we're trying to do in that case is solve for developers that need to grab land in this sort of supercharged real estate market," said Julie Quinn, chief development officer of Housing Trust Silicon Valley. The fund has so far raised $112 million to help finance 2,400 homes in the Bay Area.

Big-dollar commitments from companies often lack details about how exactly money will be spent, though Quinn said that's to be expected. "Each of the companies that's jumping into affordable housing is learning as they go," Quinn said.

It now seems inevitable that pressure would fall on big-name tech firms that are valued in the billions or trillions of dollars and are famous for their cushy offices and six-figure starting salaries for technical employees. It's a politically appealing tax base compared with everyday residents who may otherwise be asked to pay higher sales or property taxes, said Jenny Schuetz, a fellow at the Brookings Institution's Metropolitan Policy Program. "You can see why this sort of looks like low-hanging fruit," she said.

Amazon didn't exactly smooth things over with its nationwide "HQ2" contest, which pitted cities against one another to offer tax breaks or other incentives — and backfired when labor and community groups last year drove the company out of its chosen location in New York. The company's pursuit of favorable deals for the new campus was reportedly inspired by Tesla CEO Elon Musk's track record of securing deals for expansion projects worth up to $1.3 billion.


Amazon is planning a 15,000-person expansion in the Seattle suburb of Bellevue as the state weighs new business taxes to pay for housing. Rendering: Amazon/NBBJ

Washington's new homelessness tax proposal comes two years after a battle over a different "Amazon tax," this one passed by Seattle. The city council in May 2018 unanimously approved a $275-a-head tax for each employee in the city, to be paid annually by companies with $20 million or more in annual revenue. The measure was quickly repealed after Amazon, amid widespread business backlash, halted construction on its downtown Seattle campus.

The ranks of the unsheltered have remained at crisis levels since, with upwards of 11,000 people on the street in King County on any given night. Rents have surged to an average of around $2,000 a month, forcing lower-income residents into cars, shelters or cramped shared quarters, said Rachael Myers, executive director of the Washington Low Income Housing Alliance.

New business taxes are particularly attractive to housing advocates because Washington doesn't have a state income tax, Myers said, an "upside-down" tax structure that means wealthy residents often pay less taxes.

Amazon declined to comment on its shift from opposing the 2018 tax to supporting the new statewide measure, referring to a joint statement with Microsoft, Expedia and other business supporters of the policy sent to lawmakers in Olympia last week. The homelessness crisis, demand for affordable housing and concerns about public safety have grown so severe, they wrote, that the issues "directly impact" individuals and families who live and work across the region.

"We're joining together to urge a coordinated, regional approach rather than a piecemeal solution," the statement said. "We think the most high impact way to contribute to meet those needs is in the form of a new business tax imposed at a reasonable level with accountability for results in homelessness and affordable housing."

Some economists question why tech companies are singled out from large employers in other industries. The new tax proposal in Washington is unique for its focus on high-earning employees, though Schuetz of the Brookings Institution said companies may look for workarounds, like shifting compensation from cash to equity or other benefits to skirt the $150,000 threshold.

"No matter how you structure it, there are going to be some strange incentives," Schuetz said. "It feels like it's a little more punishment of the tech companies than trying to raise revenue in the most thoughtful way."

Policymakers in Seattle might look south to get a sense of some possible challenges ahead. San Francisco is still in limbo more than a year after 61% of local voters approved an average 0.5% gross receipts tax on companies with more than $50 million in annual revenue. The ballot measure is expected to generate $300 million for housing and homeless services.

The campaign pitted Salesforce CEO Marc Benioff, a vocal supporter of the bill, against critics including San Francisco Mayor London Breed and Twitter CEO Jack Dorsey, who argued that the tax was too big a financial burden for companies. A month before the November 2018 election, Benioff told The Guardian that fellow tech executives opposed to the tax were "hoarding" money, and that Dorsey "just doesn't want to give, that's all." After the measure passed, Dorsey's other company, Square, announced it was leaving San Francisco and taking its 1,000 employees to the neighboring city of South San Francisco.

Meanwhile, funds generated by the tax have been held up after the anti-tax Howard Jarvis Taxpayers Association sued, saying the measure had needed two-thirds of the vote to pass. "Because of litigation, the money can't be spent," said Molly Cohen, a spokesperson for the city treasurer's office.

Forty miles south in Mountain View, longtime housing activist and former Mayor Lenny Siegel said a 2018 ballot measure to implement a new business license tax for local employers, the biggest among them Google, proved less controversial. The measure, expected to generate $6 million a year, focused on funding for transportation, long a pet cause of companies who have invested heavily in private buses to get workers through snarled traffic. And Mountain View is not a typical local economy.

"People around here do not worry about driving companies away" by raising taxes, Siegel said.

That theory may soon be tested by other Silicon Valley cities like Palo Alto, San Jose and Sunnyvale, where officials and community groups are discussing similar measures. At a regional level, Siegel said, policymakers like the Metropolitan Transportation Commission and the Association of Bay Area Governments are debating larger-scale business or property taxes to fund housing and other infrastructure.

Other fast-growing cities such as Denver, Austin and Nashville are also starting to grapple with whether to wade deeper into business taxes as companies like Apple and Google grow in town and affordability becomes more of an issue. The idea hasn't gone over well in Texas, where state legislators last year moved to curtail cities' local taxing authority.

In Washington state, businesses have advocated for a regional approach to any new taxes. The new state bill "seems designed to address the concerns" raised by employers the last time around in Seattle, Redfin CEO Glenn Klenn wrote in a blog post. "It's county-wide so businesses can't easily relocate from Seattle to Bellevue in order to avoid the tax," Klenn wrote.

As the new tax bill winds through the state Capitol, it remains to be seen if cities like Seattle may try to implement more local business taxes — and how companies would respond to such a move.

For now, Amazon plans to expand to Bellevue despite the prospect of the new homeless tax. In a company blog post announcing the expansion, Amazon quoted business boosters who called the move "an extraordinary investment" in the city of 145,000 people. Still, Mayor Lynne Robinson acknowledged the side effects that could come with proposals like a new 43-story tower. "Accelerated growth does come with impacts," Robinson said in the post, "and we hope to mitigate those by proactively working together as a community."

In the meantime, the stakes are high for those bearing the brunt of the region's unchecked growth.

"There are a lot of people experiencing homelessness right now, but there are also a lot of people who are just on the edge," said Myers of the Washington Low Income Housing Alliance. "There's growing recognition that this is kind of an all-hands-on-deck problem."

Clarification: This story was updated on Feb. 10, 2020, to clarify that Campion Advocacy Fund does both lobbying and philanthropic grant-making.

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