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By Diana Diamond

Would you favor a business head tax?

Uploaded: Jul 5, 2018

“How do you feel about a head tax?” a friend asked me the other day. She was referring to a relatively new tax idea that some communities are embracing: The city imposes an annual tax on businesses for each of their employees, typically ranging from $100 to $400 per employee. The city collects a couple of million and spends it on whatever it wants.

The idea has been mentioned by Palo Alto city council members, and in Mountain View that council put the proposed tax on the November ballot for approval. Google, whose corporate headquarters are located in Mountain View, would pay an estimated $3.3 million a year –in addition to the $13.7 million in annual rent the city gets from the company, and $30 million for a 52-year lease on one property.

In May, Seattle City Council unanimously passed a head tax that would have raised $48 million annually to ease the city’s homelessness and affordable housing crises. It would have levied a $275-per employee tax on companies with at least $20 million in gross annual revenue, most notably Amazon. But less then a month later, the council repealed the tax, bowing to business and resident outcries that the tax was “an assault on local economy,” and made the city less competitive.

I needed to know more about the head tax before I could answer my friend’s question.

On the pro side, and depending upon the amount charged per employee, the tax could be a financial windfall to city coffers locally, like Palo Alto. A couple of extra million each year, if handled correctly, could help both the traffic problems and the affordable housing needs in our communities -- or repair roads or add more bike baths. And this time it would be businesses, not residents that would have to fork out the money. Some have argued that it is the businesses that are causing many of Palo Alto’s problems – increased traffic, lack of downtown parking spaces, bumper-to-bumper car-parked residential streets, more high rises, etc. – so shouldn’t businesses, not residents, pay to help solve these problems? So far residents have borne the tax burden.

But on the con side (i.e., why the head tax is bad), a corporate head tax is a “tax on jobs” that “limits the prospect of jobs in your community,” according to Carl Guardino, CEO of Silicon Valley Leadership Group. It’s businesses that help make our cities economically healthy. They hire lots of people, and those employees shop and eat in our town daily, and pay sales taxes for what they purchase.

Depending on the economy, businesses might quickly decide to locate in or move to a city without a head tax, to save a couple of million a year. And it’s each year they would have to pay, not just a one-time charge.

So I’ve decided – I am against the head tax. I don’t think it’s fair to charge businesses because they have a lot of employees – those businesses help keep a lot of Palo Alto and Mountain View residents employed. The taxes could drive businesses elsewhere.

So how do you feel about a head tax?