The right business tax

Is it even worth launching a ballot measure campaign for $13 million?


EDITORIAL In some ways, the battle over San Francisco's business tax represents a shift in the local power structure: For most of the past 30 years, the finance, insurance and real-estate industries — the traditional downtown corporate leaders — called the shots at City Hall. Any honest list of the most powerful people in town started with bankers and real-estate developers, and most of the time, they got their way.

Now, under Mayor Ed Lee, the tech sector is starting to eclipse the old guard. Venture capitalists like Ron Conway have the mayor's ear, and companies like Twitter are getting the favorable tax breaks. And the tech sector, which tends to have high payroll costs, is agitating for a shift from a payroll to a gross-receipts levy, arguing that the existing tax is a "job killer."

The gross-receipts plan is probably a better way to go, if only because the current tax applies only to a small percentage of the city's businesses (although most of those who are exempt are small businesses). But a 1.5 percent tax on payroll isn't a job killer any more than a modest tax on gross receipts is a brake on growth. Both are rough, imperfect but satisfactory ways to approximate the size of a company — and since a California city can't legally impose a corporate income tax, that's about the best San Francisco can do.

The real issue isn't so much about the form of the tax — just about everyone at City Hall is good with switching to gross receipts — but about the total net revenue the city's going to get out of the deal. The mayor's willing to ask the business community to come up with an additional $13 million a year — less than half of one percent of the city's General Fund and only about a 3.5 percent increase in the current business-tax revenue. It's a tiny number — and since it's based on projections, it could wind up disappearing altogether in a down economy.

The real cuts in the General Fund over the past five years — that is, the program reductions — amount to close to a billion dollars. By any rational estimate, the city needs at least $250 million a year in new revenue to keep pace with local needs and to begin to restore some of the lost services. Mayor Lee's proposal is a pittance.

The alternative, suggested by Sups. John Avalos, David Campos, Jane Kim and Eric Mar, would add $40 million in new revenue. That's enough to make up for what the city lost when 52 big businesses sued over the old business tax in 2001. It's still, however, a very modest tax increase (particularly considering that the tax base would grow from 7,500 to 33,500 businesses). And while the mayor and the four progressive supervisors are in talks about combining forces and putting a single plan before the voters (which would be the best approach by far), Avalos and his allies need to remain firm: The mayor's $13 million is far too little. It barely counts as a new revenue measure at all.

We agree that winning voter approval for a local tax hike will be challenging — but this is the perfect time to do it, with a high-turnout presidential election. And if all the city can get is a paltry $13 million a year out of the deal, you have to wonder: Why even bother?


Ed Lee will take any new revenue and spend it like Ron Conway tells him to.

SEIU's judgement heretofore on these matters has been very poor with no consequences, the same people who led SEIU down this losing path are still being paid by SEIU.

I see that bad judgement operative in this instance as well, still laboring under the misapprehension that since they would like more resources to pay SEIU members that if those resources are delivered to Ed Lee, that Ed Lee will spend them according to SEIU priorities.

Posted by marcos on Jun. 27, 2012 @ 6:26 am

They are a one-issue lobby group who will ALWAYS want more tax, higher pay and no job cuts. They are not remotely interested in anything other than being allowed to continue to have sweetheart pay, pension and healthcare deals, and they don't care what it costs.

So why even ask their opinion? I'd shut them out of all decision-making and simply tell them the outcome.

Posted by Guest on Jun. 27, 2012 @ 7:28 am

Idiot. SEIU is pushing for more revenue and is poised to put forth their own ballot measure to generate that revenue under the misapprehension that Ed Lee will use those funds to keep paying SEIU member salaries.

In San Francisco, we don't yet live in a dictatorship, although they're trying. Others have access to the political process via initiative and referendum.

Posted by marcos on Jun. 27, 2012 @ 7:51 am

We all know what they think and want anyway.

Any proposition they put forward will lose by a mile. The voters aren't completely stupid.

Posted by Guest on Jun. 27, 2012 @ 9:19 am

It is always better to cut a deal with your opponents to eliminate risk. It is even better to cut a deal with your opponents on your terms. Ed Lee did this with SEIU last year on Prop C and had SEIU obediently slit its own members' throats.

Outside of tea party ideological straitjackets, most politicians of all stripes negotiate to cut deals to hedge risk. The SEIU could crater both measures, as I see happening anyway due to revenue fatigue, and Ron Conway would be left with his tech companies paying a payroll tax.

To my mind, in the absence of counter cyclical economic wisdom, maintaining a payroll tax on payroll heavy tech firms would be good economic policy. Used to be that the fed would take a similar approach with interest rates, raising them when the economy was humming to avoid "over heating."

Higher taxes on bubble growth industries are good economic policy for the same reason, counter cyclical policies work. That's why socialists like Susan Leal, Jake McGoldrick, Fiona Ma and Gavin Newsom slapped a payroll tax on stock options back in 2004 when the civic ass was still smarting from the popping of the last asset bubble.

Posted by marcos on Jun. 27, 2012 @ 9:44 am

as with Twitter, is forced to cave anyway.

Generators of wealth, like Twitter, are always is a stronger bargaining position that consumers of wealth, like SEIU.

Posted by Guest on Jun. 27, 2012 @ 10:20 am

The public sector is the major engine of wealth generation as it provides the common infrastructure upon which private accumulation rests.

If there was no public sector securing petroleum for the US economy, the private sector would crash in nanoseconds.

San Francisco is constantly in demand as a location to live and work. Funny how we've got to cater to employers but force residents, citizens, voters to fend for ourselves.

Your ideology is blinding you, this is not Texas.

Posted by marcos on Jun. 27, 2012 @ 10:27 am

It does hire some people but only with wealth that the private sector already generated.

Twitter got a deal because it had the power to do so. SF needed Twitter more than Twitter needed SF.

And it's not SF that is a desirable location - it's the Bay Area. Twitter wasn't moving to Texas, but just ten miles away.

Posted by Guest on Jun. 27, 2012 @ 10:57 am

Government provides socialized infrastructure that generates much more wealth than it costs to provide by relieving firms of having to pay for the infrastructure that they require themselves.

Twitter got their tax deal because elected officials ran for office under false pretenses and then abandoned their positions in favor of catering to the elites.

Call it the Obama syndrome. If they were black and did the same thing, you'd be having conniption fits right now.

Posted by marcos on Jun. 27, 2012 @ 11:19 am

Every nation with high taxes has suffered for it. Even Scandinavia is scaling back their welfare and public sector

Posted by Guest on Jun. 27, 2012 @ 11:28 am

The US is in worse shape than France or Germany and they've still got public sectors that are quite robust and the French even turned out the neoliberal. Merkel is looking over her shoulder, anxiously as well.

Posted by marcos on Jun. 27, 2012 @ 11:51 am

if you believe that.

But you wouldn't last 5 minutes there.

Posted by Guest on Jun. 27, 2012 @ 12:05 pm

You mean the econ classes that teach that asset bubbles never happen because of enlightened self interest?

Posted by marcos on Jun. 27, 2012 @ 11:58 am

fluctuations in the value of freely-traded assets.

Posted by Guest on Jun. 27, 2012 @ 12:05 pm

They crushed Vallejo and now Stockton- LA next? They've destroyed SF's streets, Muni and our schools- is there anything left for the cancer that is CA government unions? It is nothing short of absurd that we have thousands of perfectly healthy people in their fifties - not working and living off of pensions they never funded and health care they're bearly paying for...

It was a good run.

Posted by Guest on Jun. 27, 2012 @ 11:12 am

i predict Oakland will go BK in 2/3 years, and SF within a decade, unless the unions are slapped down.

Posted by Guest on Jun. 27, 2012 @ 11:29 am

"At the top [of the income scale], a lot of the inequality arises out of efforts that people take to get a larger share of the pie rather than to increase the size of the pie. As you know, economists call it “rent seeking.” What they’re doing is moving money from the bottom to the top. But they’re not creating wealth; they’re just shifting wealth around. And the people who have been exploited are not better off; in fact, they’re worse off."

--Joseph E. Stiglitz, Nobel Price in Economics

Read more:

Posted by marcos on Jun. 27, 2012 @ 12:08 pm

If we all ahd equal money regardless of effort, who would expend effort?

That's the problem european nations discovered and why they are now rolling back their welfare states. At one point Denmark made unemployment pay equal to 90% of their previous wage, on the public dime. Not any more - nobody ever wanted to work.

Posted by Guest on Jun. 27, 2012 @ 12:19 pm

Nobody loves tax. But it has to be imposed and tax submission needs to be done somehow, one way or another. Individuals and businesses alike, tax plays a crucial part in our everyday life, especially in a building and growing nation and economy. Businesses however are able to review their work processes to come up with different strategies that could reduce their taxes.

Posted by Jeanette Hayworth on Oct. 24, 2012 @ 8:31 pm

idea. It was never it's purpose to raise new revenue and so the fact that it raises 13 million isn't a problem - in fact it's a victory for those who love tax hikes.

The original idea was for this change to be revenue-neutral. But in fact it will cost business 13 million.

So you actually got what you wanted, and now you're still not happy. In fact, no amount of tax increases would ever make you happy.

Posted by Guest on Jun. 27, 2012 @ 7:25 am

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