(Adds reaction from Amazon.com; background on housing crisis)
By Eric M. Johnson
SEATTLE, June 12 (Reuters) - The Seattle City Council on Tuesday repealed a newly enacted "head tax" on the city's largest companies, including Amazon.com, in the face of seemingly insurmountable big-business opposition to a revenue measure meant to combat homelessness.
The 7-2 vote in favor of repeal capped an acrimonious public hearing interrupted by chanting supporters of the tax, conceived in response to a local economic boom that has driven up real estate costs at the expense of the working class.
The council's stunning reversal came as momentum was building for a referendum drive against the measure, just weeks after it was unanimously adopted by the council and signed into law by the mayor.
"This is a cowardly betrayal of the needs of the working people," Councilwoman Kshama Sawant, a leading proponent of the tax who voted against repeal, said to thunderous applause moments before the council completed its vote.
But Councilwoman Lisa Herbold said she was reluctantly voting for repeal rather than drag the city through a protracted political fight she called "not winnable at this particular time."
"The opposition has unlimited resources," she added.
Amazon.com, the city's largest employer, was at the forefront of a coalition of businesses running a well-financed campaign to place a repeal referendum on the ballot for the November elections.
Amazon Vice President Drew Herdener hailed Tuesday's vote as "the right decision for the region's economic prosperity."
The tax would have applied only to the city's largest companies by revenue, those grossing at least $20 million a year. It was expected to be borne by about 500 companies.
Opponents had already collected nearly 46,000 signatures from voters in support of a repeal initiative, well more than the 17,000 needed to qualify for the ballot, according to the Downtown Seattle Association, a business group which led the petition drive.
The effort quickly raised $300,000, including contributions of $25,000 each from Amazon and coffee retailer Starbucks , another major Seattle stalwart, and $30,000 from a grocers trade group, said Jon Scholes, president of the Seattle Association.
The measure, passed on May 14, would have levied a tax of roughly 14 cents per employee per hour worked within the city to raise at least $45 million over five years. The revenues were earmarked to build affordable housing and furnish support services for the homeless.
Sponsors of the tax said Seattle's biggest-earning businesses should shoulder some burden for easing a low-cost-housing shortage they helped create through an over-heated real estate market that has left the working poor and many middle-class families unable to afford to live in the city.
Opponents branded the measure a "tax on jobs" and said they feared it would spark an economic backlash.
Amazon had threatened to abandon plans for a major downtown office building if the head tax was approved. After Tuesday's vote, Herdener said Amazon was committed to "being part of the solution to homelessness" and would continue to invest in nonprofit groups addressing the problem.
Advocates for the poor say that rampant homelessness in the city is an extension of a larger crisis in affordable housing.
They cite data showing Seattle's median home prices have soared to $820,000 and that 41 percent of renters ranked as "rent-burdened," meaning they pay about a third or more of their income on housing.
The Seattle metropolitan area is home to the nation's third-largest concentration of homeless people, nearly 12,000 counted in a January U.S. government survey and almost half of them living on the streets.
The debate has been closely watched by politicians in major cities nationwide. Last month, about 40 elected officials from across the country, some from local governments vying to host Amazon's second headquarters, published an open letter to Seattle in support of the head tax and expressing concern that Amazon opposed the measure. (Reporting by Eric M. Johnson in Seattle; Additional reporting by Jeffrey Dastin in San Francisco Writing by Steve Gorman Editing by Bill Tarrant and Leslie Adler)