Editor's Notes

The payroll tax may sound awful but suspending it won't create a single new job

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The mayor of San Francisco is mad that the Board of Supervisors won't even schedule a hearing on his proposals to stimulate business and job creation in San Francisco. He ought to be happy. If this loopy plan ever gets to the point of open, full discussion, Gavin Newsom will wind up with a real political embarrassment.

Let's analyze, for example, the suggestion that the city waive payroll taxes for biotech companies. That's supposed to make those companies more likely to hire new people. After all, any economist knows that taxing something discourages people from doing it, so taxing a payroll ought to make companies less likely to hire. And getting rid of that tax ought to create jobs.

Well, since one of the things I do is help run a small business in San Francisco, let me explain how it actually works.

Say you're a biotech company that wants to hire a new entry-level worker at a modest $35,000 a year. Can you afford it? Let's cost it out.

There's the salary, of course. Then there's the 7.5 percent you're paying in federal Social Security tax. That's $2,626 more. And since you're in San Francisco, you're paying for health insurance; that's probably between $2,000 and $4,000 a year, depending on the plan, but let's peg it at the city's minimum mandate, which is $1.09 an hour, or $2,267.

So now your $35,000 worker costs $39,893. Then there's unemployment and disability insurance and workers' compensation. The person's going to need a desk and a chair, or a lab bench and a stool (and they have to be ergonomically correct), and probably a computer, a phone line, and software. And you're going to have to spend some money on training. You're going to offer a couple weeks of paid vacation, right? And you have to give sick days. So you have to account for the money you're spending to cover your new worker when he or she isn't working. If it all pencils out at less than $42,000, you're doing well.

Oh, wait, I forgot — there's the damn city payroll tax. That job-killing factor that could make the difference between hiring and not hiring. Better account for that; it could be a deal breaker.

Are you holding your breath? Ready for the ax to fall? Here you go: the payroll tax on your new hire is a whopping $525 a year. About $10 a week. You probably spent more on the help wanted ads.

So let's be honest — the payroll tax may sound awful (and actually, I think a gross receipts tax would be more fair, for a lot of reasons). But suspending it won't create a single new job. It's too small a factor to count as more than decimal dust in anyone's hiring decisions.

Here's what suspending the payroll tax for biotech companies will do: reduce city revenue, almost certainly by enough to force more program cuts, and that means more job cuts for city workers. So you gain no private sector jobs — zero — and you lose public sector jobs. How, exactly, is that encouraging employment growth?

Quit complaining, Mr. Mayor — the last thing your proposals need is real public scrutiny.