Don't Lose Your Head Tax

Seattle used to have a “head tax” that charged companies for employees who drove alone to work. It was a pretty good deal and it funded important transit infrastructure in the city. But it got repealed after some griping and moaning by the Downtown Seattle Association (DSA), leaving a big hole in the city’s transit budget. A look at Oregon’s system for funding transit (a regular old payroll tax) makes me think a new and improved version of Seattle’s head tax might look pretty attractive to business, city, and commuters alike. Let’s call it a “Don’t Lose Your Head Tax” where solo car commuters pay a flat fee to do so, businesses collect it via payroll and it goes to important city infrastructure that benefits everybody.

First some details. Last summer the DSA successfully advocated for the repeal of the so called “head tax,” a $25 dollar charge to companies for each employee who drove alone to work in the city. Small businesses were exempt from the tax and the average business paid $92 a year. Small as that sum may seem, the tax generated over $4 million a year for bike and pedestrian infrastructure. The DSA obviously didn’t know how good they had it! Our neighbor to the south, Oregon, allows local transit districts to levy a payroll tax on businesses to pay for bus and rail service. Comparatively, Seattle businesses pay very little—and with the repeal, nothing—for transit.

The fact is that $92 to pay for significant city investment in alternative transportation infrastructure was a bargain. The DSA’s position on the “head tax” has always been flat out disingenuous at worst and plain wrong at best. In its effort to satisfy business interests, the Seattle City Council repealed the tax. The DSA said that the tax would hurt business, was too complicated to fill out, and didn’t actually impact the employee who drove to work but, instead punished only the business who had no control over the transportation choices that employee made. Richard Conlin also repeated over and over again that the tax was not high enough to act as a disincentive for workers anyway.

As I have written elsewhere the repeal of the “head tax” has created a $4 million hole in the Seattle Department of Transportation budget during a recession and at a time when the city is supposedly on a campaign to achieve carbon neutrality. Now the city is trying to find a way to replace that revenue to fund bike and pedestrian projects, and I have a great idea how they can do it—taking the best of Oregon’s set up.

How about we replace the “head tax”—which was a tax on workers who commute to work alone—with a payroll deduction, not based on wages but for employees who drive alone to work? The idea would be to generate the same amount of revenue for something good (pedestrian infrastructure for example) from something bad (driving to work alone) in a way that is easy and fair.

Here’s a look at Oregon’s system. In 1969, the Oregon State Legislature passed House Bill 1808 which authorized local transit districts to raise revenue through a payroll tax. By the end of that year TriMet was formed and had imposed a payroll tax. The payroll tax generates the bulk of the $211 million dollars that TriMet collects in tax revenue to fund its operations. The employer is on the hook for the payroll deduction and has to pay $6.818 in tax per $1,000 in wages. That means for an employee earning about the median income in the region—$50,000—the employer would pay about $340 annually to TriMet to pay for transit operations. In Eugene, to Portland’s south, the charge is $7 per $1,000 in wages. These payroll taxes are easy to administer because employers already have to deduct numerous federal and other taxes and charges from payroll. All a business would have to do is dial in one more in their payroll program.

Here’s my deal for the DSA. Seattle could improve on Oregon’s system. Let’s reinstate the “head tax” but, this time, we’ll collect the tax from employees who drive alone instead of their employers. It would be a use fee collected via payroll; it isn’t taxing wages like the payroll deduction for TriMet since we can’t legally tax wages in Washington. The charge per employee who drives alone to work would be a flat charge, say $25, collected on an annual basis from the employee’s paycheck. And the DSA should love the fact that this simpler method would be collecting money from the employee, not the business. And to deal with the councilmember’s concern that $25 isn’t enough of a disincentive, the charge could rise by 25 percent a year over the length of an employee’s tenure. Gradually they’d feel the pinch and maybe get on the bus or try biking to work. More importantly the city would get its $4 million—and perhaps more over time—for improvements to make it more and more convenient and efficient for people to walk, bike, carpool, and ride transit to work rather than slugging it out in long, expensive, single-occupant car commutes.

A use fee taken via payroll for sidewalks, bike paths, and transit improvements is a win for business because it’s easy to administer and they don’t have to pay it, a win for the city which would have a replacement for the lost head tax, and employees who did drive alone would get the message about alternative transportation choices on a regular basis while barely feeling the $25 fee. And the City of Seattle would be able to take a tangible step toward making the city a leader in alternative transportation. This would also go a long way toward helping Seattle meet its goal of carbon neutrality.

Photo courtesy of jppi from morguefile.com.