Editorial: The business tax debacle


Labor and much of the progressive community worked with downtown and the Mayor's Office last year to craft a pension-reform bill that took away benefits from city employees. The unions came to the table, recognized the city's financial problems and bought into a compromise, even though it took money out of their pockets.

And now big business, with the support of Mayor Ed Lee, wants to reform the local business tax in a way that doesn't bring the city a dime of new revenue (and hurts small business in the process).

In other words, it's fine to seek compromise when it's about cutting workers pay and city costs. When it's about asking big business (and a lot of big businesses, particularly tech businesses, in this town are doing exceptionally well right now) to chip in just a little more, to do the right thing, address the revenue side of the ledger and pay a fair share, the answer is No.

That's not ok — and the supervisors shouldn't go along with it.

The essence of the proposal from the mayor's office (orchestrated in significant part by billionaire Ron Conway) is to shift the city's main business tax from a levy on payroll to a levy on gross receipts. There are winners and losers in that scenario, and the business community is split: High-tech firms tend to have high payrolls compared to gross receipts, and finance, insurance and real-estate tends to have high gross receipts compared to payroll. So the burden could shift from the likes of Twitter and Zynga, who would pay less, to the commercial office and financial-services sector, which would pay more. In other words, the new business elite likes the change, and the old guard doesn't.

Small business doesn't like it much, either — a lot of the tiniest companies in town now pay no tax at all, and would be hit with at the very least an annual license fee. So the percentage paid by the smallest would go up

You can certainly argue that tech is creating more jobs than other sectors of the economy these days. And while it's fun to watch the Chamber of Commerce and Conway's San Francisco Citizens for Technology and Innovation butt heads (and progressives are looking for ways to exploit those differences), the fight between Twitter and the Business Owners and Managers Association is a sideshow.

The real problem is that the mayor's plan would be revenue-neutral — that is, the big business community, which has never paid its fair share of the city's tax burden, would be doing nothing at all to help with the structural budget deficits that plague San Francisco. Labor gives up hundreds of millions of dollars. Neighborhoods suffer with service cuts. The poorest San Franciscans give up housing and health care and social services in the name of balancing the budget. And the wealthiest companies in town smirk and say: Sorry, we won't help. Screw you, buddy.

That's a nonstarter. A lawsuit by 52 big businesses over an earlier gross receipts tax, settled in 2001, cost the city as much as $50 million a year — and at the very least, this new tax should get that back. A plan that doesn't at the very least bring in $50 million to $100 million a year of additional revenue from the big operators — tech, finance, real-estate, and the rest — amounts to the proverbial shifting of deck chairs on the Titanic. If the mayor won't move, a grassroots alternative needs to be on the November ballot.




To be clear, not all of small business finds this plan onerous. For a great many small businesses, switching to a gross receipts plan will save thousands of dollars -- enough to employ another person or two in many instances.

It's true that businesses grossing more than $100,000 will go from a $25 license fee to paying more -- a company with receipts of $250,000 will pay around $350. That's more than nothing, certainly, but hardly a burdensome amount. Especially given the free ride they've enjoyed thus far.

Posted by Guest on May. 15, 2012 @ 4:05 pm

What benefits were "taken away?" Answer: None. (I assume you understand the distinction between a "contribution" and a "benefit.")

The unions did not "come to the table." They were dragged kicking and screaming by Jeff Adachi.

"Cutting worker's pay" is not true. No one's wage was cut (when someone puts money is his 401k - is that a wage reduction?) and police and fire got a big raise to pay for an increased pension contribution -meaning the "reform" actually cost taxpayers money.

And oh by the way, all the purported savings from City union pension reform passed in November was erased by Retirement Board action when it reduced the investment return assumption to 7.50% from 7.75% in January. So taxpayers got nothing in savings- all smoke in mirrors.

Posted by Guest on May. 15, 2012 @ 4:15 pm

It's entirely reasonable to make taxes fairer without necessarily either increasing or decreasing the total tax take. Those are two different issues.

We'd all like taxes to be fairer, assuming we can ever agree on what that means. But I see no electoral mandate for higher taxes. Indeed, Avalos stood on that versus a pro-jobs Lee and lost emphatically.

So let's make the tax take fairer and then, if you believe taxes should be higher so city workers can continue to have far better pensions than the rest of us, then put exactly that proposition on the ballot.

Posted by Guest on May. 15, 2012 @ 4:31 pm

Thank you for this well written editorial!

I'm sorry, public employees absolutely took pay cuts. Maybe you didn't notice in 2009 when Newsom laid off 300+ employees and rehired them the same day with a 20% pay cut, or in 2010 when City employees took a 5% pay cut, or later that year when workers took a 1% pay cut to create a fund for laid-off workers, or in 2011 when they started paying 7.5% of their take home pay for benefits they already had (which virtually amounts to a pay cut).

Whether or not labor was happy with the concessions, they made them. The fact that the Business community (especially the tech firms that are booming right now) are not willing to cut into their profits to help remedy the City's budget is despicable.

Why is it that some of the above commenters applaud working mothers who make under $50,000 a year taking a pay cut, but vigorously oppose corporations who are raking in billions from contributing in taxes? I think some of y'all need to check your facts, reassess your priorities, and remember that the vast majority of City employees are not the top brass, or even the police or fire personnel who are making 6 figures.

Posted by Guest on May. 15, 2012 @ 8:13 pm

There are very few city workers that make less then 50k a year, and if they do make 50k, that's a good salary as my wife and I together in a great year do 65-70k total, and the city doesn't enforce the insurance requirement at all, there's not even a place to complain to, I have been trying to complain for 6 years and just get a run around from those morons in the cushy jobs with super bennies...

Posted by Joe Smuchatelli on May. 20, 2012 @ 5:56 am

City jobs often pay more than the private sector equivalent AND there are those insanely good benefits on top. So we need to cut and cut until your compensation costs are manageable.

Why should the wealth and prosperity generating parts of society be penalized thru higher taxes just so that you can continue on the gravy train?

Voters will not pay higher taxes just to see you swallow it all up for your nice pensions. You guys ruined it for all of us.

Posted by Guest on May. 16, 2012 @ 6:37 am

For most jobs, pay in the public sector is lower than in the private sector.

In what world is the parasitic financial services sector a "wealth and prosperity" generating part of society. It is mostly rent-seeking, using its stranglehold over government to generate outsized returns in boom times, while shuffling losses to the taxpayer in bad times.

Taxes need to be raised on financial speculation to reflect the true cost, which include the fact that investment returns will be reduced for the next decade, thanks to the mismanagement and greed of the Too Big To Fail banks.

Posted by GlenParkDaddy on May. 16, 2012 @ 8:29 am

How do you think successful companies get funded to grow? Thru either bonds, bank loans or stock issuance.

We all benefit from free, efficient capital markets. We don't benefit from bureaucrats and city cheap suits.

Oh, and a muni bus driver earns about double what a private sector bus driver gets.

Posted by Guest on May. 16, 2012 @ 10:01 am

Choke on your $800,000,000,000,000 in default swap derivatives.

Posted by marcos on May. 16, 2012 @ 1:32 pm

Not the gross exposure.

Quit playing games with numbers.

Posted by Guest on May. 16, 2012 @ 2:07 pm

We all benefit from Synthetic CDOs and Lehman Brother's and AIG's collapse? Do tell.

We had free, efficient, well-regulated capital markets from 1933 until 2001. Then the deregulation fever took hold and we got an unregulated casino. You can thank both parties for that debacle.

A corporate CEO makes about 10x what a manager with comparable responsibility makes in the public sector. How do we go about cutting the fat in the private sector?

Posted by GlenParkDaddy on May. 21, 2012 @ 8:56 am

years now. It's only a "casino" if you don't understand how they work and how to profit from them.

Posted by Guest on May. 21, 2012 @ 9:13 am

The City rolled the unions on pension reform, now the unions expect that if the City gets more revenues that the City will spend those dollars on public sector employees to provide public services?

No. The only way to end this cavalcade of municipal corruption is to cut off new revenues until the parasites fall of of the host. Let's hope that the parasites starve before the host does.

No sales tax.
No Park bond.
No gross receipts tax.

The only thing that Ed Lee will be allowed to do with these revenues is to further enrich the 1% at the expense of the rest of us.

Posted by marcos on May. 16, 2012 @ 1:35 pm

Any tax hikes, even assuming they are approved, must pass thru to services and NOT be allowed to feather the nests of the cosseted city workers.

The voters won't wear that.

Posted by Guest on May. 16, 2012 @ 2:11 pm

Where do you think all the money goes from tax increases, bonds etc.

- supplies and materials??

Posted by Guest on May. 16, 2012 @ 3:39 pm

not simply for over-paying suits to simply "show up".

I guarantee you I could fire 20% of city workers and nobody would even notice.

And the pension plan has nothing to do with delivering services, other than make them unaffordable.

Posted by Guest on May. 16, 2012 @ 3:50 pm

Willie Brown fattened up the public sector employment base by about 40%. There were about 10k City employees when he took office and 14k when he left. But the population only increased about 10%. I always wondered: what new services are we getting from all those extra employees?

I know we hired some new Muni drivers and that is good, we had a severe shortage for a while. And Muni service definitely improved under Willie, naysayers notwithstanding. But what else are we getting for the money?

Healthy San Francisco? I can see that costing a bunch, but how many extra employees can it really take to run a health plan? Or did we staff up General to handle the extra load?

Does anyone know the answer here?

Because I am a Big Government Socialist, but I can't see just padding the payroll with a bunch of Wilie's patronage hires. This is what it looks like to me.

Posted by GlenParkDaddy on May. 21, 2012 @ 9:00 am

the problem you express, GPD. Although I'd exempt cops from that.

Posted by Guest on May. 21, 2012 @ 9:14 am

New revenue can go to contracts with the politically favored, I believe the term is "outsourcing."

Corrupt neoliberals like Ed Lee are put into place to ensure that city contracts go to Willie and Rose's friends.

There is no mandate that these new tax dollars go to social services.

Posted by marcos on May. 21, 2012 @ 7:52 am

You have a few good points - however, being a City employee of San Francisco your very first line was incorrect and I found it hard to keep reading. Regarding the participation of "labor and most progressives working on Prop C..." to be absolutely clear, it was the union staff, the SF Labor Council working in collusion with the SF Chamber of Commerce to bring about "pension reform" that, somehow, these labor staff and "elected leaders" and "progressives" approved - but only after Prop C. was vetted and approved by the millionaires who crafted it with City leaders.

It was a shameful process and it certainly was not "pension reform" - however anyway the SF Bay Guardian would like to spin it needs to be clarified every time that these editorials misrepresent what happened in the 2011 elections and the sham Prop C

Posted by Guest on Jun. 07, 2012 @ 12:25 pm

the other proposals that an increasing number of voters deem inevitable as the black hole of pension liabilities looms large.

You really are in a fantasy world if you think people are willing to pay ever more taxes so you and your ilk can live alrge in retirement.

Can't pay; won't pay. Prop C is just the start,

Posted by Guest on Jun. 07, 2012 @ 12:53 pm