Seattle’s Tax Experiment Backfires July 15, 2025 by Dan Mitchell

Economists are lousy forecasters, at least when they try to make specific predictions.

But good economists at least can speculate about whether proposed policies will make things better or worse.

For instance, Ronald Reagan had the good fortune to study economics at Eureka College and he was wise enough to make this universally applicable observation about tax policy.

I try to follow Reagan’s approach.

As such, when politicians in Seattle were enacting a payroll tax back in 2020, I didn’t make any cataclysmic estimates of job losses.

Instead, I wrote that, “…it’s easy to predict the consequences. Businesses and workers will migrate to surrounding communities without the tax. Not all of them, of course, but enough to make a difference.”

Well, it seems I was right.

Here are some excerpts from a March report by Julia Dallas.

Seattle Mayor Bruce Harrell released his payroll expense tax (PET) report for 2024 on Tuesday and its projections came up nearly $50 million short. …The Association of Washington Business, Bellevue Chamber of Commerce, Seattle Metropolitan Chamber of Commerce, and Washington Roundtable released a joint statement, saying the numbers are as expected. …The payroll tax is levied on large corporations in the city, like Amazon and Expedia. Such a steep revenue forecast error suggests high-paying companies or their jobs are leaving the city. …KTTH host Jason Rantz called the news “catastrophic”… “What people haven’t realized yet—but soon will—is that the sharp drop in payroll expense tax revenue means jobs are leaving Seattle,” Rantz explained. “The whole point of the PET was to squeeze ‘free’ money out of businesses because the city arrogantly assumed it held all the cards. But what did PET actually do? It pushed Amazon jobs to Bellevue, kept employees working from home (and out of Seattle), and helped fuel layoffs at companies hit hardest by the tax—like Expedia.” …Even Harrell acknowledged, “This decrease in revenue is aligned with recent reports of major employers moving thousands of high-paying jobs out of Seattle to other cities in our region.”

I reckon we should be grateful for Seattle’s greedy and misguided lawmakers.

Like their colleagues in other cities (Philadelphia, Chicago, Berkeley, Vancouver, and Washington, DC), they have produced an excellent case study about supply-side economics.

The Philoso-Raptor understands the implications, but are our friends on the left similarly astute?

For what it’s worth, I think many statists are bright enough to grasp the economics, but they don’t care.

They’re motivated by spite and envy, not economic reasoning.

Or they are practitioners of “public choice,” meaning they will do whatever leads to short-run political benefits, even if means bad long-run policy.

P.S. Seattle conducted another tax-hike experiment and got similar results.