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Amazon Tax fight with Seattle is one Example of How Democracy Fundamentally Does Not Work

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There are several fundamental structural problems with the current set arrangement of democratic structures around the World. One case in point is the current conflict between the city of Seattle Washington and the large businesses that are headquartered in the city.

Fundamental Problems with democracy

  • Government leaders do not share in profits so have the incentive to seem compassionate and not to maximize growth in population or revenue
  • Leaders in a democracy change frequently so that no one’s reputation or brand is on the line when they change the rules.
  • The key costs like taxes are not nailed down contractually for long periods of time (decades or more) But they could be in a corporate federation
  • The municipality and the state is too large and there are large costs associated with moving the long distance from one jurisdiction to another

One of the problems with democratic governments at the state and municipal level is their ability to arbitrarily change the rules of the game at any time. It becomes excruciatingly difficult to engage in the kind of long-term planning that large-scale businesses need to engage in when you have a substantial line item on the cost side of your ledger that is subject to change with little or no notice.

One example of this kind of short notice rule changing is currently taking place in Seattle Washington. The City counsel of Seattle recently floated the idea of imposing a 26 cent per man hour worked per employee on any company with a gross revenue of more than $20 million. This comes out to about $540 per employee per year. This included companies who are headquartered in the city like Starbuck’s and Amazon. Amazon was in the midst of building an office tower capable of housing approximately 7,000 additional employees. This would be in addition to the 40,000 employees that Amazon already employs in the city. This means that the new tax would cost $20 million in new taxes even without the additional expansion. Amazon had already sunk several million dollars into the new tower but stopped construction in response to the city counsel’s proposed employee head tax on large companies. When the counsel later reduced the proposed tax increase to $275 per employee Amazon resumed construction. Amazon’s Vice President Drew Herdener warned that Amazon remains, "very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.”

The interesting thing about this particular situation is that this “head tax” is being justified to solve a homelessness problem that is largely the result of other Seattle government policy relating to zoning.

 

"Normally, higher prices would induce more construction, but zoning laws prevent that," Glenn Kelman, CEO of Redfin Corp. wrote in a blog post on Tuesday. The Seattle-based real estate company did not sign on to a widely circulated petition opposing the tax, but Kelman did argue that it would ultimately fall short. "The amount of housing the city can build with a head tax, or any tax, is nominal," he wrote.

 

While homelessness is driven by many factors, including the nationwide opioid epidemic and the state’s meager mental health resources, new research indicates the city’s rising housing costs corresponds to increases in the number of people without shelter. A pro bono report that McKinsey & Co. produced for the Seattle Metropolitan Chamber of Commerce found a “96 percent statistical correlation between the region’s rent increases and the increase in homelessness,” according to the Seattle Times.

 

These two data points taken together make it clear that the solution here is for the city to make it a priority to prove private sector expansion of housing and transportation infrastructure. This is a supply and demand problem that the private sector is more than capable of solving by streamlining the approval process for housing. High rents and high market sales prices are extremely attractive to developers but the city is not allowing them to proceed with plans that would be tremendously profitable to developers and immensely valuable to the employees of the companies that are flocking to the Seattle area for the AI software developer talent.

 

How to Solve the Fundamental Problems:

First to solve the problem of government leaders not having an incentive to facilitate growth in population and revenue flip government completely upside-down. I talk about this in detail on my youtube channel UncommonSenseUSA and will elaborate in my upcoming book but here are the essential elements of radical reform that could fundamentally solve the problems prevalent in all democratic governments. The solution is a completely new form of governmental organization that flips the relationship between companies and governments on its head. Here are the bullet points in a nutshell. They will seem shocking and ridiculous at first. All new ideas do, so buckle up.

 

1. All property in a given area should be owned by a single company. Private ownership means the non-government owner has skin in the game and wants the area to prosper so that they can maximize revenue. They are also held accountable because if they fail to govern well they will lose customers (citizens) and will not attract new citizens or businesses.

2. The company needs to allow people groups with to charter very small government authorities within the land that they own. These mini-governments or “townships” should be no more than one square mile or so or 5,000 to 15,000 people. Small size of each township is important because it allows each individual to move from one township to another without having to move a great distance from their job, family, or geographic areas they want to live close to. This forces townships to compete for citizens but allows each one to be unique and actor to religious or philosophical niches that a larger government could never accommodate.

3. Taxes should be a two-way negotiation and put down in a contract that is guaranteed to remain unchanged for a specified number of years. This would be like a long-term lease or a cell phone contract or a mortgage. By entering into a tax contract with a private corporation you don’t have to work about your taxes changing during the agreed time frame. Then when the contract is up you are free to shop around and find another jurisdiction or to renegotiate a better deal.

 

If we really want to see a day where the government does not act the way governments act, we need to totally rethink the idea of government and design a power structure that flips everything upside-down.

Host of UncommonSenseUSA: Michael Conn

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The underlying theory behind this head tax is (as always) that by taxing the rich, we can solve the homeless problem, or any other problem. As for this particular issue, I propose, first, that people do a bit of critical thinking about how to determine that there actually is a problem. (Hint: it isn’t by monitoring the media to detect an uptick in homelessness claims). People familiar with social science research will recognize the underlying problem: what fact is purportedly being quantified? To what extent is the “problem” a by-product of changing definitions? If we assume that there is a problem, then we have to ask, what causes it? Superficially, it appears that (a) there are more people with mental problems in the area, and one of their problems is that they don’t deal with their housing issues, plus (b) non-mental-problem people can’t afford housing because it costs too much. I think these two issues are in fact related. Problem (a) has plagued Seattle for more than a half a century: I don’t know if there is any research that substantiates this, but one theory is that since we don’t get killer freezes, it’s actually possible to live under the bridge as a lifestyle. At any rate, there is not a general belief here that the problem is due to a surplus of people with mental problems, though it is likely that that is the main cause of the problem. Which reduces the issue to “affordable housing”.

Housing is affordable if you make enough money to get housing. There are very many places which I cannot afford to live in, and a few which I really would like to live in, but can’t. How can this affordability problem be solved? One solution would be that I should be paid more money, so that I could afford that house (that solution was been implemented some years ago with a massive spike in the minimum wage). Another is that some clever person comes up with a way for me to get a place in a house in an area that I’d like to live in, but it would somehow be cheaper. I do favor that approach, though there are issues to be addressed. The third solution, which is not discussed as a solution, or, if discussed, is seen to be part of the problem, is that we recognise a basic fact that nobody has a fundamental right to live in a particular neighborhood. If you cannot afford to live in Queen Anne, you have the right to live in Skyway (lower rent, less trendy). Or, ultimately, you have the right to live in a less expensive county. There is no question that property costs a lot in the Seattle area. But there is no law requiring you to live in Seattle. The connection between mental problems and affordable housing is this: if you can’t afford to live in Seattle, chose to live elsewhere. If you can’t make that decision, there is a mental problem, that you don’t understand how you do have free will, and you have to have a hierarchy of values. Is it more important to live indoors, or is it more important to live in Seattle?

Of course, this cannot be part of the public “conversation” on homelessness – the actual right to live in Seattle (if you can manage it) has gotten corrupted into an entitlement to a domicile in the area of your choosing, even if you can’t afford it. And therefore if you cannot actually afford to live here, rather than this being a personal problem where you have to move to a cheaper area (on the premise that you don’t have job skills that garmer more than the local inflated minimum wage), this is a public problem where the city must provide housing for you, so that you don’t have to move away.

As a sound bite, it is correct that zoning laws are a substantial part of the availability problem. Pointing to the Redfin blog post on the other hand is utterly the wrong thing to do. Note that that they support “zoning for more affordable housing, and higher taxes on corporate income or high personal income to fund subsidized housing and homeless services”. They are not opposed to zoning laws and they are not suggesting eliminating zoning laws; they are not saying we should let the market solve the problem. The main failure of the Zillow blog is that it fails to show concretely how or even that existing zoning laws have the effect of reducing available housing. By not specifically identifying the cause-effect relationship, and by not identifying the specific cure, we are left with a vague idea that it’s “about zoning”, and we simply need to change zoning laws to require all new construction to be low-cost mega-multi-family storage units.

Ultimately, the head tax will have the result desired (by the proponents). Businesses will leave, there will be a substantial crash in real estate values, and more housing will become affordable. Property taxes contribute to homelessness (average house property taxes in the city are around $8K a year, and will be increasing as the scope of local government increases). That’s a pretty hefty chunk of change, which obviously contributes to rents and the possibility of owning a home. Driving big business out of the city will eliminate many of those 6-figure employees who create demand for housing (balanced by supplier’s increase demand for compensation in exchange for a house); when demand crashes, prices will drop, assessed values will drop, and we’ll get a bit of property tax relief. So I guess the head tax might result in “more affordable housing”, in a cynical way.

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