Tag Archives: taxation

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Note to Seattle: If You Want Less of Something, Tax it

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Seattle (photo by Rattlhed via Wikipedia -- public domain)
Seattle (photo by Rattlhed via Wikipedia — public domain)

What’s the best way to help the homeless? While there are lots of reasons for homelessness in America, ranging from mental illness to the use of e.g. “sex offender registries” to put certain areas off-limits to certain people, poverty likely places high on the list — and a major cause of poverty is the inability to find a good job.

Apparently the city council of Seattle, Washington, disagrees. On May 14, the council voted unanimously to start reducing the Emerald City’s employment opportunities for the purpose of funding the city government’s homeless services and affordable housing schemes.

They didn’t put it that way, of course. In fact, at least one city council member accused companies like Amazon and Starbucks of “blackmail” for pointing out the obvious and inevitable consequence of demanding that employers pay a $275 annual “head tax” on each full-time employee in the city.

According to the Associated Press coverage of the tax, it would “raise roughly $48 million a year to build new affordable housing units and provide emergency homeless services.” That figure is likely based on on an untenable assumption: That Seattle will continue to have as many or more full-time employees working within the city limits after the tax is implemented than it had before the tax was passed.

In fact, what Seattle’s politicians are telling prospective employers and current employers is “don’t locate here, and if you are already located here, move away, or at least don’t expand.”

The tax may raise some money, but its main effect will be to increase unemployment in Seattle.

Its secondary effect will be to raise the cost of building “affordable housing” in the city since the labor cost for every carpenter, bricklayer, electrician, etc. will go up. And the cost of everything else, too. Grocers and cab companies and landscapers and restaurants aren’t going to just grin and fork over the tax. They’re going to raise prices to cover it.

Both of those effects lead to a tertiary effect: Fewer jobs and more expensive housing, transportation, food, etc. will mean more, not fewer, homeless people.

Naturally, the likely “solution” to the problem getting worse rather than better will be to increase the tax. And that likelihood creates “regime uncertainty.” Perhaps some companies would consider the other benefits of locating in Seattle worth $275 per year per employee. But if the tax can go from $275 to $500 to $1,000 at the drop of a hat, Seattle just won’t look like a good place to start a new enterprise or expand an existing one.

I dislike “targeted” tax measures because they smack of social engineering. But if Seattle’s politicians really want to help the homeless by messing with the tax code, the better way would be to offer tax BREAKS to companies that employ people, and especially companies that employ people to build homes.

Seattle cannot and will not tax its way out of its homelessness and housing problems. But it should at least stop looking for ways to tax itself more deeply into those problems.

Thomas L. Knapp (Twitter: @thomaslknapp) is director and senior news analyst at the William Lloyd Garrison Center for Libertarian Advocacy Journalism (thegarrisoncenter.org). He lives and works in north central Florida.

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Op-Eds

Sorry, Republicans: If You’re Not Cutting Spending, You’re Not Cutting Taxes.

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President Donald Trump and Republican congressional leaders rolled out their new tax plan on November 2. Since all bills must have titles, they’re calling this one “The Tax Cuts and Jobs Act.”

Republican “tax reform” theatrics have worn thin over  many months of waiting, but I still prefer a more theatrical title. “A tale Told by an idiot, full of sound and fury, Signifying nothing” rings true. Four centuries later, Shakespeare’s MacBeth is a better description of the matter than any coming out of Washington, DC.

Yes, there’s plenty of quibbling across the aisle over everything from top rates to the home mortgage interest deduction, but neither party’s politicians seem willing to tackle the most basic, indisputable, and relevant fact: Since Congress isn’t cutting spending, Congress won’t be cutting taxes either.

In 2017, the US government will spend more than $4 trillion. That’s 21.5% of Gross Domestic Product, more than one out of every five dollars in wealth created by the US economy.

In order for that wealth to be spent by the political class, it must first be taken from the productive class. To spend a dollar, one must have a dollar. There are three ways to get the money, and all of them are taxation whether they’re called that or not.

The first and most obvious way, and the way dealt with in “The Tax Cuts and Jobs Act,” is through overt taxation. Personal income taxes. Payroll taxes linked to Social Security and Medicare. Capital gains taxes. Corporate taxes.  Tariffs. Etc., etc., ad nauseam.

The second way is borrowing. Government borrowing is more accurately described as deferred taxation. Borrowers have to be paid back. When government borrows a dollar, it is promising its creditors that it will, sooner or later, tax that dollar out of you (or your descendants) to pay back the principal, and that until then it will tax you a little bit each year to keep up interest payments.

The third way is inflation (which is tied to borrowing in ways too complicated and boring for a short column to cover). For all the murky descriptions of what inflation is, it’s simple: The government creates more dollars out of thin air, making each dollar in your pocket worth a little less. Inflation is a tax, too. A sneaky tax, but a tax nonetheless.

For every dollar a government spends, a dollar must be taxed. The only exception to that rule is if the government collapses and leaves its creditors unpaid.

In order for Congress to truly cut taxes, it must first balance the budget, then begin cutting that balanced budget. Until and unless it does so, your taxes can only go down in the political imagination, not in reality.

Thomas L. Knapp (Twitter: @thomaslknapp) is director and senior news analyst at the William Lloyd Garrison Center for Libertarian Advocacy Journalism (thegarrisoncenter.org). He lives and works in north central Florida.

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