May 23, 2018; Governing
It will shock no one that business often dominates city politics. Yet the City Council’s decision in Seattle to raise business taxes upends that expectation. The business leadership was loud in their opposition, yet while the tax amount was reduced, by and large they were ignored.
As Liz Farmer in Governing recalls, “Earlier this month, the Seattle City Council unanimously passed a $275-per-employee tax on companies that gross over $20 million a year, such as Amazon and Starbucks. The city estimates it will generate nearly $50 million per year—a roughly 3.5 percent increase to its budget—to address housing affordability and homelessness, which reached emergency levels in recent years. The tax is scheduled to go into effect in 2019 and sunset after five years.”
Farmer considers whether the tax might hurt Seattle’s economy in an article titled, “Will Seattle’s Controversial Tax on Big Businesses Stunt Its Economy?” What is interesting, however, is that the likely answer is “no.” The reasons why speak to major changes underway in US city politics.
The role of business elites in setting urban political agendas has long been obvious, but renowned political scientist Clarence Stone outlined it in a book called Regime Politics. In 1989, Stone identified the dynamics, rooted in informal negotiation, by which social goals get subordinated to the political agenda of business leaders. He developed his theory while conducting research in Atlanta, which, as NPQ noted earlier this year, remains a site of significant class and racial division and inequality despite the city’s common mantra of being a city “too busy to hate.” In a 2002 paper, Stone noted that in Atlanta,
The city’s business sector has contributed money, investment capital and financial expertise, civic prestige, political access to state government, and a network of civic organizations as well as having made corporate staff available for specific civic tasks. The [Black] community has contributed crucial electoral support for change-minded officials, a network of civic organizations along with higher-education based expertise, and key actors for specific civic tasks.…
Although the coalition has gone through episodes of conflict, the enduring mode of cooperation has been behind-the-scenes negotiation…Atlanta’s biracial coalition is not, however, a “wonder” regime, able to solve all problems. While it could host the 1996 Summer Olympics, it has not been able to launch an effective program of school reform. It has no significant and sustained anti-poverty program. Its one-time effort to expand the supply of low-income housing has yielded to a renovation program of selective attention to small, mixed income projects aimed more at accommodating the middle class than housing those of lesser income.
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Seattle is very different from Atlanta—and yet in Seattle, business has often gotten its way. Five years ago, Boeing threatened to move airplane production out of Seattle and the region unless the state reduced their tax bill; the state of Washington obliged, at an astonishing cost of $8.7 billion.
It is more than that. A recent study by the Economic Opportunity Institute found that Seattle’s overall tax system is the “most regressive” of 15 Washington cities. This in a state that the Institute on Tax and Economic Policy called “the most unfair state and local tax system in the country.”
What has changed, however, is the value of physical proximity for companies. Some readers may recall a time when the internet, by making it possible to telecommute to work, was supposed to foster geographic dispersion. Yet as Saskia Sassen, Marianne Feldman, and others have noted, technology has actually increased the importance of face-to-face interaction. That’s why there are clusters like Silicon Valley. Or, for that matter, Seattle. As Feldman puts it,
As social beings we will want to co-locate with others like ourselves, in locations that offer amenities that we value and interesting opportunities, and that wonderful element of serendipity—the chance meeting, the unexpected cup of coffee, the unanticipated revelation. There will be certain centers of innovative activity that will be the most desirable locations, the most productive places to be. And anyone who can will want to be there.
The economic value of proximity leads to booming land values (which, not coincidentally, are a root cause of the city’s homeless crisis). In Seattle, the median home price hit $800,000 for the first time this year. What that means is that, as much as business will complain, for most, the cost of not being located in city centers is higher than the cost of staying. And that makes the emergence, in Stone’s terms, of a new urban regime at least possible.
Not that holding the line on the business tax will be easy. Already, a group of businesses is calling for a referendum to overturn the tax. Unhelpfully—and amazingly shortsightedly—the city of Tacoma, 30 miles to the south, has launched a “No Head Tax Here” ad campaign, hoping to encourage Seattle businesses to relocate.
Still, Seattle businesses know that the rules have changed. Fitch Ratings, notes Farmer, called the tax “relatively modest,” adding, “Fitch Ratings says the city’s talent pool of employees, highly educated population and public amenities all point to strong economic growth.”—Steve Dubb