Normally I go out of my way to avoid politics because the highly localized hijinks on both sides of the aisle seldom result in anything more than a few headlines. But every once in a while a group of politicians does something so unthinkable that there are huge ramifications for your money.
That's the case with Seattle's latest move - a 2.25% tax on individuals earning more than $250,000 a year and couples filing jointly earning more than $500,000 a year.
Uninformed investors are going to get clobbered when the law of unintended consequences rears its ugly head. Obviously, I don't want that to be you, which is why we're going to talk about what's happening, what it means for your money, and how to defend yourself against this policy and other policies just like it going into effect worldwide.
That's not a mistake and it's not a typo.
What's happening here in my backyard is a microcosm of a far larger chain of events playing out around the world.
Cash-Starved Governments See Only One Solution
In America, Germany, Japan, China - wherever you go - one thing is true...
Governments are starved for tax revenue.
And with a wave of social activism catching the imagination of self-absorbed politicians everywhere, that's led to tax hikes all over the place.
Most recently, Seattle, my own backyard.
Seattle's City Council just voted unanimously - nine to zero - to pass a new 2.25% income tax on everyone making more than $250,000 a year and on married couples filing jointly who make more than $500,000.
And in doing so, Seattle just damned itself to repeating Detroit's mistakes... and Chicago's... and Philly's. Then there's also Baltimore, St. Louis, Newark, and Oakland, just to name a few more failed municipalities.
Never mind the politics.
The economics of a tax like this stink - even if it's yet to pass the courts.
Under the new tax, any person having a gross income higher than $250,000 will find their wallet hit to the tune of nearly $500 a month, or roughly $5,650 a year, and that's after federal taxes in a state that legally has no income tax.
Add to that the recently enacted 10.1% city sales tax - one of the highest in the entire country - and the exorbitant King County property tax rates which affect city dwellers, and the result is clear...
A very well-documented "hollowing out" of Seattle has begun.
The daisy chain of events starts with highly skilled labor leaving. Politicians do not understand that professionals are mobile and so is the money that comes and goes with them.
They'll head for Bellevue, Redmond, Issaquah, or any of a dozen other places. Cities that are all minutes away, where they can live and commute without paying these taxes.
There, these same professionals will be buying new houses and condos to live in after selling their Seattle-based properties which, of course, they'll use for a down payment or to fuel the already out of control rental market.
Businesses that remain will be forced to compensate - which means they're going to jack prices, cut employment hours, or simply close the doors. Disposable income as a whole will go down as those who cannot move become "trapped."
"Local" Companies - and Their Investors - Will Suffer
Right now, Seattle is a rich, vibrant city, which is why critics will say "no way" when they read this. People leaving is simply not possible, the critics will cry. And they're right... for now.
But down the line, things will change, and not for the better.
It's very hard to stop the flight of capital once it begins regardless of why it begins or who starts the process. What's more, it doesn't matter whether you are talking about a tiny town or an entire nation.
If you treat money punitively, it leaves.
And when it does, it takes hundreds of billions of dollars in highly skilled jobs, intellectual capital, and property values with it.
It's not as far-fetched as you might think.
More than two dozen companies have relocated from Silicon Valley and the Bay Area to Austin, Texas, as the Bay Area has adopted similarly punitive and profit-hostile policies against successful businesses and their employees who work there.
Alphabet Inc. (Nasdaq: GOOGL), Apple Inc. (Nasdaq: AAPL), Amazon, and Oracle Corp. (NYSE: ORCL) all have ginormous campuses in Texas, for example. It wouldn't take much to move their headquarters there or even overseas, like dozens of companies have over the past few years if things get bad enough.
Again, I am not making this up. History is very clear about what happens when money moves.
According to the San Antonio Express, more than 1,430 households left the Bay Area for Texas while taking nearly $390 million a year in taxable income with them from 2009 to 2012.
Imagine what that figure is today with the economy in growth mode.
Likewise, Mitsubishi Heavy Industries left New York and went to Houston for similar reasons. Liberty Mutual and State Farm went for Dallas. Facebook Inc. (Nasdaq: FB) chose Forth Worth for a major data center.
Toyota Motor Corp. (NYSE: TM) North America's CEO Bob Lutz noted last year that the company asked all 4,000 of its U.S. employees to move to West Plano, Texas, where the company built a 2 million-square-foot headquarters and that he expected 75% or more to make the move.
Thankfully, there is a profitable solution.
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"Glocal" Companies Will Prosper No Matter What
You've often heard me talk about the importance of Unstoppable Trends backed by trillions of dollars that will get spent no matter what when it comes to three things: 1) the Fed cannot screw 'em up, 2) Wall Street cannot hijack 'em, and 3) Washington - nor any other government - cannot screw 'em up.
It's the third thing that applies here.
CEOs Follow Profits
CEOs at the helm of companies tapped into globally Unstoppable Trends are not subject to the same brand of financial lunacy as politicians.
Why?
Because they understand how to make real money and spend it profitably.
They have to.
They answer to shareholders like you and me. Shareholders who will vote with their wallet if they don't like a policy, or buy more shares if they do. Shareholders who directly impact the value of their decisions.
I have no doubt that increasingly cash-strapped cities around the world will enact policies like the one Seattle just did. That means there is going to be plenty of movement around the world by corporations keen to stay one step ahead.
Seattle's City Council does not understand that decisions like the one it just made are the stuff of financial nightmares, not dreams. Nor do they understand that two of the world's most recognized companies based here - Amazon and Starbucks - will move if the city treats their employees harshly and makes it difficult to attract talent.
Again, this is simply unthinkable but, then again, so was Boeing leaving in 2001.
Money can and will move to where it is treated best, no matter where in the world that is... or in the state, for that matter.
Not surprisingly, the best way to play that is to line up with companies that aren't tied down to a single local market.
Companies like Amazon or medical tech giant Becton Dickinson, and Co. (NYSE: BDX), both of which are lined up with globally Unstoppable Trends.
Invest accordingly.
Or your money will leave without you.
Editor's Note: "Must-have" companies backed by Unstoppable Trends are a cornerstone of Keith’s wealth-building strategy. But there's another type of investment he wants Money Morning Members to know about. It's one of his favorites, a kind of "desert island fund" he'd buy if he had to park his money in one place, "retire" from civilization for 20 years, and come back to a pile of money. Click here to learn more…
The post Why Seattle (and Other Cities) Are on the Verge of Losing Their Biggest Businesses appeared first on Total Wealth.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.