Today, National Taxpayers Union Foundation released a study analyzing the latest trend in local tax policy, Employee Head Taxes (EHT). Seattle is the latest city to levy additional taxes on businesses on a per employee bases. In this case, Seattle should have already learned the dangerous lesson that comes with an EHT, after voting to repeal one in 2009 following its negative economic impacts. The previous EHT sat at a mere $25 per employee per year compared to the new proposal of $275 per employee per year.
The paper’s author Andrew Wilford wrote:
"As every economist will tell you, one of the first rules of tax policy is that if you want less of something, tax it. An EHT is no different—its most obvious and direct effect is to decrease employment, whether by causing layoffs or disincentivizing future hiring. And because an employee making minimum wage makes a business liable for the same EHT as a CEO making millions, businesses have every incentive to lay off low-wage workers first."
While this seems like an easy way for a city to raise revenue, this tax disproportionately impacts low income workers and draws jobs away from the city. In Seattle's case, raising additional revenue will do little to curb their overspending problems.
If you are interested in discussing this further with NTUF Policy Analyst Andrew Wilford, please contact NTU Vice President of Communications Kevin Glass at 703-299-8670 or kglass@ntu.org.
Read Andrew's commentary here.