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Amazon paid zero federal income tax on a 2017 profit of $5.6B. It received a $784M rebate from the new federal tax law. Seattle's "head tax" will cost it $12.4 million yearly for five years.
4 min read
Hundreds of cities have bent over backwards to court Amazon for a new HQ2, offering enticements such as massive tax breaks: New Jersey has offered as much as $7 billion in tax breaks to land the company, hoping it might give Newark an edge over its 19 competitors on the shortlist.
They’re doing this for good reason—whatever city wins the Amazon bid stands to see explosive growth, as the company brings billions of dollars in construction and infrastructure improvement to the area, and will hire as many as 50,000 jobs over the next decade—with average salaries over $100,000.
Related: How Amazon and Entrepreneurs Can Pay Zero Federal Income Tax, and Do So Legally
This isn’t just hyperbole: Seattle serves as Amazon’s shining case study of what the tech giant can do for a community. According to the company’s figures, Amazon’s invested more than $38 billion in Seattle’s economy between 2010 and 2016, and takes credit for not just its own 40,000 workers, but the creation of an additional 53,000 jobs elsewhere in the city as a result of its direct investments, such as local retail and restaurants around the Amazon campus. It’s also helped turn the area into a tech powerhouse: While only seven Fortune 500 companies had R&D centers in Seattle in 2010, that’s since grown to 31 in 2017.
The company makes it clear: Where Amazon goes, progress follows.
Related: 4 Obvious Pros and 4 Disconcerting Cons for Whatever City Wins Amazon's HQ2
So that’s why it seems bizarre to me that the city of Seattle is now directly targeting Amazon, and just a handful of other large employers, with an additional tax on payrolled workers.
The “head tax” applies only to companies grossing at least $20 million a year, and would cost an average of around $275 extra per employee each year. The city anticipates raising close to $50 million extra each year through the tax, which would go to building subsidized housing for the urban poor.
But Amazon doesn’t want to get on board, and since the tax has passed, it has thrown its plans for an additional 7,000 jobs in Seattle into question. While there’s no denying that homelessness is a serious problem in Seattle, the problem isn’t Amazon’s to solve -- it’s the city’s.
Related: Amazon HQ2 Search Exposes Gaps in America's Tech Workforce
Is the 'head tax' a bad idea?
A tax that directly targets the biggest, most successful businesses in an area is a sign that they’re not welcome -- and that they should consider taking their jobs elsewhere, though a number of methods.
Relocating employees: While it’s unlikely that Amazon will leave Seattle, once they’ve chosen a new headquarters, they’re likely to do the math to consider how many positions they want to keep in an environment that taxes them highly. If an alternative region offers better calculations, they’ll most likely relocate some of their existing teams.
Increased use of automation: Many job functions are being lost to automation as it is -- but a tax that targets human capital is likely to lead the business to increase the speed of automation even faster to eliminate as many unnecessary positions as possible. That’s what McDonald’s has done in response to rising minimum wages, and while many Amazon jobs are more complex than flipping burgers, we can expect to see the company prioritize investing in technology over people.
Call on contractors: Finally, the tax only applies to employees—not contract labor. When companies are called on to contribute additional payroll taxes for employees, they often make the move towards more of a contract-based labor force. This shift eliminates access to stable benefits such as employer-sponsored health insurance, sick leave, paid time off, and retirement plans -- in turn, putting more of a burden on the government to support these workers.
More than 100 fellow business leaders in Seattle have also spoken out against the tax in an open letter on Medium. “We oppose this approach, because of the message it sends to every business: if you are investing in growth, if you create too many jobs in Seattle, you will be punished,” they write.
The solution to Seattle’s homelessness problem is not an easy fix -- it will rely on urban planners, city government and local agencies to come together to build sustainable models. But calling on Amazon and its fellow big businesses to pay for solutions is simply biting the hand that feeds them -- do they really want the food to go away?
Opinions expressed by Entrepreneur contributors are their own.
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