Seattle City Council Is Playing With (Amazon) Fire
/For some companies, the cost of hiring is going up in Seattle.
The Seattle City Council, by way of a 5-4 vote, approved a "Head Tax" that would charge Seattle companies that earn more than $20 million each year a tax of $500 for every worker they employ. This would generate $75 million in yearly revenue for the city. Of that, $50 million would go toward the construction of "affordable housing", $20 million would go toward emergency shelters to improve the rampant homelessness problem and $5 million would go toward administrative costs.
Critics accuse the tax of being punitive on large companies like Amazon that employ thousands of people. Amazon has protested the tax by halting development on a particular downtown real estate project.
Interestingly, Mayor Jenny Durkan opposed the Head Tax in its original form. She prefers to cut the tax in half to $250 per-employee, but City Council quickly rejected that. The existing proposal can bypass a mayor's veto if it receives 6 votes (one more than the initial vote).
The City Council is playing with fire. The nerve its members have to push Amazon's buttons is pretty stunning. If you compare the South Lake Union area 10 years ago to what it is today you would think it was a different city altogether if not for the Space Needle. That is all due to Amazon.
I have many thoughts on the housing market here/around Seattle, but that is for another time. Regarding homelessness, instead of arbitrarily levying a tax why not work with Amazon, Starbucks, Zillow, etc. to create a plan and obtain funding?
This leads to the main issue I have with it, which is the lack of detail. When there is already a general distrust in how government will use its money, it is especially surprising to target its largest generators of economic growth without a coherent plan. The 500 companies that will be affected may think twice about where they hire in the future.
If Amazon were to scale back development or move its operations, how would that hurt businesses that have benefited from its presence? Construction companies, home contractors and other industries that touch commercial or residential real estate would be adversely impacted.
The City Council is due to vote soon to see if it can collect the 2/3 vote needed to overcome a mayoral veto and enact the Head Tax in its current form.
In The Market...
The S&P 500 gained +2.6% this past week. Let's look under the hood:
(price data via stockcharts.com)
No doubt last week was solid. Nearly every stock sector was positive and the bond market even finished in the green. The two sectors we have liked most -- Technology and Energy -- led the way, rising nearly +4.0% apiece on the week.
Looking more broadly at the entire market as a whole, the S&P 500 has broken free above its recent downtrend, as shown here:
(chart created in stockcharts.com)
Notice how the price of the S&P index broke above the falling trend line (in pink). This is encouraging but not necessarily a guarantee that stock prices are off to the races. The index remains roughly -4.5% below its all-time high. I could see the rally persisting up until it starts to press against that high, at which point prices will likely hit some headwinds.
Coming into this week, Tech continues to look the best. We added a Tech sector fund to many accounts last week. We are looking to add either Energy or Consumer Discretionary sector funds in the coming days if prices continue to rise.
In Our Portfolios...
What's New With Us?
For those of you who actively login to Morningstar to view portfolio performance information, there is a new-and-improved site that you should use moving forward. The new site is: fp.morningstar.com
This revamped Morningstar platform provides greater account detail, smoother navigation and a better overall interface. Let me know if you have any questions. It remains the place where monthly fee summaries will be posted.
Finally, happy belated Mother's Day to all you moms!
Brian E. Betz, CFP®
Principal