If You Want Tax Reform, You’re Pro-Business

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by Hanna Brooks Olsen

Earlier this month, Councilmember Lorena González tweeted that she didn’t “believe the rhetoric” a person must be either “pro-business” or “pro-worker.” In subsequent tweets, she explained she “genuinely [believes] that small businesses want to help their workers thrive and make a good living wage in Seattle” and stated this was why she has introduced new labor laws to the council.

It was enough to incur a Twitter dogpile, entirely by folks on the left. Constituents told her to be “more pro-worker” and that her “dialect sucks.” Comedian Brett Hamil called her remarks “a fantasy.” The Seattle DSA reweeted it to their followers with the quote “The wise man smiled. ‘my friend, the arrangement you seek is Worker-Owned Cooperatives.’”

González, the daughter of a migrant worker, a long-time civil rights attorney who has defended workers against wage theft and a co-sponsor of this year’s secure scheduling ordinance, has gone out of her way in her time as a councilmember to listen to workers and make tangible changes. As the chair of the Gender Equity, Safe Communities & New Americans committee, she has personally championed paid family leave—an accomplishment no prior mayor or councilmember has been able to achieve.

Now, she’s a corporate shill for even deigning to use the phrase “pro-business.”

Last week, many of the same neighbors disparaging González have been mourning the loss of a local business icon. The owners of Cafe Racer, a University District staple, finally announced after attempting to sell the business for months, they could no longer keep the place open. But they didn’t cite the minimum wage, secure scheduling, or other labor laws.

Instead, owner Kurt Geissel cited the “the debt incurred in the refitting and re-permitting of the building combined with the Roosevelt corridor construction.”

In short, what was hurting Geissel was similar to what’s been hurting workers—the cost of a location and the constant growth. Financially-speaking, in spite of the uniform disdain for business, the truth is that many of us are, in fact, both pro-business and pro-worker—and many of our favorite businesses are struggling for all the same reasons we are.

Size Matters

At a time when everything is deemed “divisive” (and “divisive” is often coded to mean “something I don’t want to hear”), the linguistic difference divide between “business” and “workers” has never been so wide. Even more than traditional political blocs, it’s this perceived binary driving much of the conversation around labor policy.

Residents of the city—particularly those here since before Amazon, and especially those who don’t work in high-paying technology jobs—are feeling particularly upset about the role of large corporations. The dramatic increase of home prices, the worsening gridlock, the demolition of cherished buildings and the packed buses are just a few of most visible, disruptive (in the non-startup way) marks of a city that feels like it might buckle under the weight of a thousand new residents each week.

These us-versus-them sentiments aren’t without merit. The most vocal opponents of the city’s new labor laws have been unsympathetic at best, often cloaking their concern about higher wages or paid sick leave in statements about how their employees are “like family.”

Tom Douglas, who owns more than a dozen restaurants and properties, and initially protested an increase to the minimum wage, stated a quarter of the restaurants downtown would shutter. Douglas, who owns two homes and a farm, has opened numerous upscale eateries since the new wage went into effect.

Or there’s Subway franchise owner Matt Holleck, who complained the new wage was “unfair to me.” He also compared his Subway shop—wherein supplies are much cheaper due to bulk purchasing, many of the payroll and administrative costs are handled outside of the business and access to additional capital through loans is simplified—to “the sandwich shop down the street.” Holleck wasn’t even that upset about the $15 wage in general; mostly, he was angry that as a franchise, he’d need to get there sooner than a small business. But the majority of the Subway franchises Holleck owns are outside of the City of Seattle, meaning they wouldn’t be subject to the new law at all. He went to court for three years over an extra $3 per hour for fewer than 20 employees.

These men—whose arguments sound selfish, tone-deaf and discriminatory to those who are barely scraping by on $13.50 plus tips—do not help the cause. When this is the opposition, it’s easy to look to business, as a monolith, and see the root of all problems. However, the difference between, say, Amazon’s experience with Seattle and that of a smaller business—say, a family-owned operation that’s been renting a space for 20 years—is massive.

Contrary to the narrative of the right, the greatest impact on small businesses in Seattle isn’t some nebulous idea of “regulations” which must be repealed. Last year, as part of the University of Washington’s ongoing study of the minimum wage, a report given to the City of Seattle stated researchers “did not find compelling evidence that the minimum wage has caused significant increases in business failure rates,” adding “if there has been any increase in business closings caused by the Minimum Wage Ordinance, it has been more than offset by an increase in business openings.”

Businesses are opening, service jobs are seemingly endless, and employers have stated they’re having a hard time finding and retaining talent because employment is so competitive and staff are able to command well over $15.

The hardest part about keeping the doors open isn’t the few hundred dollars of payroll increase. Instead, it’s the thousands of dollars of rental increases, the constant road construction and the fact that the workers can’t afford to live here anymore.

If we want to solve the problem of affordability for workers, we’ll necessarily need to solve the problem of affordability for small businesses.

Councilmember Kshama Sawant—a Socialist who has staked her career on being thoroughly pro-worker— demonstrated this last year when she introduced a business-focused rent control proposal.

Sawant located a potential loophole in the Washington State ban on rent control, noting the ban explicitly applies to “residential” structures. In an attempt to pry it open, she introduced a potential solution: rent control for small businesses.

“Small businesses face overwhelming obstacles just surviving in the modern economy,” she wrote. “Big businesses capture not only the lion’s share of profit, they also utilize their capital to exert a disproportionate influence on politics – influence which is used to further corporate interests at the expense of workers and small businesses alike.”

Then-mayor Ed Murray’s business taskforce, which included former members of the Chamber of Commerce, shot the idea down.

One of the major reasons for helping small businesses keep their location is that it would help assuage the feeling Seattle is changing too much, too quickly. When businesses like Cafe Racer close down, there is a feeling of losing character.

Sawant pointed to the idea of neighborhood character loss in her remarks, explaining that “commercial rent control would help preserve the character of the city, foster the arts, and create a much more stable environment and future for workers.”

Mayoral candidate Cary Moon has echoed the same sentiment on the stump. “Our city’s local businesses create good jobs, reinvest their profits locally, and circulate wealth back into community,” she wrote in a Medium post, wherein she proposed convening small businesses from all sectors to offer advice on the path forward.

Challenger Jenny Durkan has also aligned herself with small businesses frequently; her plan includes a small business council and an “MHA-like approach” to commercial rents.

Both Moon and Durkan have called attention to the business and occupation (B&O) tax. Durkan says she’d give small businesses a three-year exemption. Moon wants to be more aggressive—in a Q&A with MyNorthwest, she proposed a more progressive approach.

“We have to look at a more steeply progressive B&O tax where larger corporations pay a bigger share and smaller, family-owned businesses pay a smaller share,” she explained.

A Matter of Taxes

Beau Hebert, who co-owns Lottie’s Lounge in Columbia City and Jude’s Old Town in Rainier Beach with his wife Courtney, employs just a handful of people, himself included. Beau is frequently behind the bar with a towel over his shoulder, pouring drinks and starting the dishwasher. In a recent interview with the Emerald, he stated he often felt like the “anti-business rhetoric” from some members of the community missed the point.

“I could cut costs by switching to Sysco, but I’d rather pay more for…local produce, local products,” he explained. He also acknowledged raising prices wasn’t an option because he wants his establishment to remain within reach of his customers.

But, he said, the B&O and sales taxes were killing him.

Though members of the far left might criticize the idea of an elected official being both “pro-business” and “pro-worker” at the same time, the financial reality is that very small businesses—those with just a handful of employees and no franchise backing—are more like individuals than they are like corporations.

Under Washington’s regressive, bottom-heavy tax system, the burden of paying for the things that the city needs, as well as the growth that many residents didn’t ask for, falls to the lowest earners—and the smallest businesses.

Because Washington relies heavily on sales, excise, and property taxes to balance the books and ensure a consistent revenue stream, those with greater income and more access to capital typically spend less of their wealth on taxes. These taxes don’t rise or fall to meet the income of the people paying them—they’re essentially a flat tax. However, it’s impossible to save money on a tax like one on the sale of necessary products (clothing, shoes, many hygiene products, tents), which means the less money you have, the greater share of your total income you spend.

Businesses, too, pay these taxes. Additionally, they’re subject to both state and federal taxes—which, at least in Washington, are just as regressive.

Federally, small businesses pay an income tax on net profit. Often called the “corporate tax rate,” this is a scalable tax dependent on a business’ profits. However, the scale is extremely friendly to massive companies like Starbucks and Amazon, which far exceed the top rate. That money does not go back into the state’s pockets, and doesn’t fund local needs, like roads and schools.

Companies based in Washington also pay a B&O tax which is not scaled by income.

“Washington’s B&O tax is calculated on the gross income from activities,” according to the Department of Revenue, meaning “there are no deductions from the B&O tax for labor, materials, taxes, or other costs of doing business.”

In other words, companies don’t get a break from the B&O tax, regardless of the size, and they all pay the same percentage (based on their industry). But of course, big corporations are masterful when it comes to reducing their already-low tax burden; for years, companies have set up offices in other states to dodge local taxes. Amazon, who posted more than $800M in profits in a single quarter, took advantage of an expired tax loophole to escape $14M in Washington state taxes in 2016.

Small businesses may get a tax credit if their B&O burden falls below a specific number, but the amount is relatively small.

The flat B&O tax also means that companies like Amazon and Microsoft, which bring tens of thousands of residents to the region and place increased demand on roads, buses, schools, services, and housing, don’t pay a tax rate that’s commensurate with their impact.

Governor Jay Inslee campaigned on making Washington’s taxes work better for small businesses, proposing further B&O tax credits, as well as expanding management training. Many of the proposals have been tabled, though; on the right, they’re viewed as not being big enough. On the left, they’re viewed as a giveaway.

And therein lies the problem—what does it mean to be “pro-business,” and what does it mean to be “pro-worker”?

 In a housing market that has put thousands of people on the streets, workers have more financial common ground with the small coffee shop down the street than that coffee shop has with Starbucks HQ. Our tax system is broken for just about everyone except the biggest companies and the wealthiest people. Those benefiting are invested in keeping it that way.

At the same time, forces from the left are so hesitant about including small businesses in their ranks for a better deal that the factions are being created around ideological, not necessarily mathematical, lines.

The solution could be a total dismantling of the financial structure as we know it—more co-ops, more democratized workplaces, a more worker-run approach. But that’s not going to help the people sleeping outside tonight, or the ones commuting to the suburbs to work for minimum wage. It’s also not going to help the small businesses who are sweating their taxes right now, about to shut their doors because they, too, are getting squeezed by a system that doesn’t work for them.

Which is all to say: if you’re sad to see Cafe Racer go, aren’t you just a little bit pro-business?


Hanna Brooks Olsen is a co-founding editor of Seattlish and has written for the Atlantic, CityLab, and Seattle Met. When not stringing together words or making sounds she enjoys music on vinyl, bourbon, college football, making impulse purchases at second-hand stores, ballet, and sitting in dark bars with friends. She also sings a mean rendition of Walking in Memphis.

Featured image by Alex Garland

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4 thoughts on “If You Want Tax Reform, You’re Pro-Business”

  1. Is this the Lorena Gonzalez who at the 37th district’s Democrat meeting last year stated that the city should not hire veterans.

    They can take 5, 10 or 20 years out of they life to serve their country often in combat and when they come home they are disqualified and given no credit for their time in the service. Their friends who stayed home and went to work for the city have advanced. This is one heck of a bad way to thank those who served.

    Lorena lead the cheers that veterans should not be hired. Do we really want this person in city hall? I say no!!!

    Like

  2. New White Gentrify

    Good article. Thanks for doing the research!
    But damn if the photo above isn’t terrible optics and a sad and distressing comment on “Old Rainier Beach”. The white hipsters, ALL White, in the photo, sure don’t look like old Rainier Beach. It looks like New White Gentrify to me. But I bet more than half of the people in the kitchen are of color, and don’t live in Rainier Beach any more. Sadness.

    Like

    1. Ain’t nothing new about that. The optics are what they are because people complain all day about gentrification coming instead of actually having a plan to combat it. I’d rather have action as opposed to sadness. Sadness doesn’t stop the migration to Auburn.

      Like

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