Why do Lee, Chiu, and others want to stifle economic growth?

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This phrase has moved from the Republican fringes to mainsteam San Francisco's political dialogue.

Why do Mayor Ed Lee, Board of Supervisors President David Chiu, and San Francisco's two major daily newspapers want to punish success? Because that's exactly what their proposal to create a new gross receipts tax for businesses – in which corporations would be taxed more as they grow, thus encouraging economic stagnation – would do.

Right now, the city taxes businesses through a payroll tax, levying taxes based on the number of employees the company has. But under a gross receipts tax that would replace the payroll tax, employees have a disincentive to be productive and efficient and increase their companies' profits because that would expose those companies to more of the city's onerous tax burden.

Why would investors and employees want to grow a business in San Francisco when that would only submit them to higher taxes. Clearly, this is anti-business measure that is likely to plunge our local economy back into the depths of the recession. Don't our leaders understand the need to help this fragile economic recovery?

Okay, okay, in case you haven't guessed it yet, the previous three paragraphs are satire of the ridiculously overblown and misleading political rhetoric used by Lee and other critics of the city's payroll tax, which they deride as as “job killer” that makes companies not want to hire new employees.

“Mayor Lee and Board President David Chiu proposed a gross receipts tax as an alternative to the City’s current payroll tax, which punishes companies for growing and creating new jobs in San Francisco,” Lee's office wrote in a press release it distributed last week.

Yet my argument that a gross receipts taxes “punishes companies for growing” is just as logically sound as Lee's argument that the payroll tax discourages companies from “creating new jobs” – and both arguments are also complete hyperbolic bullshit. But it's seductively simple and widely parroted bullshit.

“To attract more companies to San Francisco and encourage existing employers to hire more employees, it is past time to do away with this tax,” our new neighbors down the hall, the editors of the Examiner, wrote in their editorial today, a oft-repeatedly refrain from the Chronicle and SF Chamber of Commerce as well. It later added that switching tax methods "wouldn’t penalize companies for employing people or paying them well. And city policy wouldn’t give employers any incentive to shed employees during a downturn.”

But the reality is that the 1.5 percent payroll tax is too small to really be a factor in the decision by corporations to add new employees, something they are already loath to do unless forced to by rising demand. It is simply one imperfect gauge of the size of a company and its ability to pay local taxes, just as the gross receipts tax is.

Health insurance costs, which Lee's CPMC deal doesn't adequate contain, is a far bigger factor in a company's hiring decisions. So is commercial rent, which Lee's corporate welfare policies are causing to go up downtown and throughout the city.

For decades, conservatives have tried to sell the general public on bogus trickle down economic theories that we all benefit from corporate tax cuts and that people will simply stop working if you tax them, ideas that should have been discarded as they were discredited. But they're back with a vengeance, in supposedly liberal San Francisco of all places, actively peddled by key Lee supporters like billionaire venture capitalist Ron Conway, who only recently dropped his Republican party affiliation in favor of declined to state.

But it's time to call out this voodoo economics for what it is: self-serving bullshit that ought to be rejected by citizens of a city that prides itself as being more educated and enlightened than the rubes in the flyover states that have been so thoroughly manipulated by the Republican Party and Blue Dog Democrats, to the detriment of our entire country.

Now, the Examiner's argument that the business tax reform proposal would broaden and stabilize the tax base is a sound and meaningful argument, which is why the concept enjoys widespread support from across the ideological spectrum and is worth doing (although progressives rightful argue that if the tax base is being broadened then the city should reap some benefits from that, logic that Lee inexplicably resists).

Yet as the City Hall debates that will shape the details of business tax reform begin in a couple of weeks, it's time to drop this misleading “job killer” label that has been promulgated by Republicans and other fiscal conservatives over the last decade and have an honest debate over what's best for San Francisco's private and public sectors.

Comments

highest rate in California, as far as i am aware. and that means, quite possible, the nation.

There's probably no worse tax than one that exists specifically on jobs. And your point that it doesn't affect hiring is disingenuous. Clearly a 1.5% increase in the cost of hiring means, ceteris paribus, 1.5% less hires than could otherwise be made.

I don't like a gross receipts tax much either. It punishes high-volume, low-margin businesses like supermarkets, while going easy on high-margin businesses like law.

But it's a broader tax than a payroll tax which can be avoided in various circumstances, such as with partnerships. So as long as a GRT has certain reasonable exceptions, and of course as long as this change is revenue-neutral, then I might reluctantly support it.

Posted by Guest on Jun. 18, 2012 @ 3:09 pm

I thought this was all about some stock option scheme? The real reason for the tax change is so creepy people don't like to talk about it.

http://www.sfexaminer.com/local/2011/04/san-franciscos-payroll-tax-might...

San Francisco's payroll tax might lose stock options

Posted by Guest on Jun. 18, 2012 @ 3:37 pm

I don't know any other municipality that taxes them because, as we saw with Twitter, it drives out enterprise and success.

Nobody who works considers stock options to be actual pay

Posted by Guest on Jun. 18, 2012 @ 3:55 pm

"Nobody who works considers stock options to be actual pay"

I agree.

The grocery store in the new twitter building should go public and pay it's employees in stock options also.

Posted by Guest on Jun. 19, 2012 @ 1:05 pm

The only company that took advantage of the tax break so far is Zynga.

http://www.dailyfinance.com/2012/06/18/a-massive-red-flag-for-zynga-inve...

"A Massive Red Flag for Zynga Investors"

Just because the mayor is in the pockets of stock market fraud artists doesn't mean everybody else is.

Posted by Guest on Jun. 18, 2012 @ 4:16 pm

The article raises two questions 1) Are taxes punishment? and 2) Is supporting the civic infrastructure where a business operates ultimately in the business’ self interest.

Taxes as punishment is a glass half empty. Generally, as a society we need woefully to mature beyond a simplistic negative psychology associated with taxation.

Taxation per se isn’t the issue. Particularly in San Francisco, legitimate representation of residents and locally owned businesses is the Critical Mass of our times.

Collectively, we need to pay forward with regard to civic infrastructure whenever we can. It engenders communal context and societal elevation.

It’s the right thing, for human decency.

Tom Ferriole

Posted by Tom Ferriole on Jun. 18, 2012 @ 7:49 pm

you can't win a debate by using them. All you're really saying is that you like taxes and government. You can't win a point just by saying you approve of it.

Voters decide what level of taxes and government they want and they routinely vote not tot ax themselves, even when the cause is supposedly noble.

And a city that can't run muni or fix the streets, and which overpays it's workers, doesn't get the benefit of any doubt. Even voters who might agree to more tax to fund services, won't pay more tax so city workers can continue to enjoy unsustainably unaffordable pensions.

Posted by Guest on Jun. 19, 2012 @ 4:50 am

The article raises two questions 1) Are taxes punishment? and 2) Is supporting the civic infrastructure where a business operates ultimately in the business’ self interest.

Taxes as punishment is a glass half empty. Generally, as a society we need woefully to mature beyond a simplistic negative psychology associated with taxation.

Taxation per se isn’t the issue. Particularly in San Francisco, legitimate representation of residents and locally owned businesses is the Critical Mass of our times.

Collectively, we need to pay forward with regard to civic infrastructure whenever we can. It engenders communal context and societal elevation.

It’s the right thing, for human decency.

Tom Ferriole

Posted by Tom Ferriole on Jun. 18, 2012 @ 7:51 pm

"corporations would be taxed more as they grow, thus encouraging economic stagnation."

Stevey Jones, talking like a FoxBot! Who would have guessed?

You should have delved into this more throughly. This is a fight between Old San Francisco money (the banks, the financial district) and New San Francisco Money (tech geeks).

It is basically revenue neutral. Choose your pick.

Posted by Troll the XIV on Jun. 19, 2012 @ 6:23 am

Hard to believe everybodys' rent is going up so a handful of stock manipulators don't have to pay their taxes.

Way to go Ed Lee!!!

Posted by Guest on Jun. 19, 2012 @ 1:11 pm

I have managed a small business for more than 20 years in this city. I have hired people, I have laid people off, I have dealt with tight budgets and tought payroll decisions. And never once has the payroll tax been a factor. It's just not.

Posted by tim on Jun. 19, 2012 @ 9:07 pm

staff, revenue and pages and the fact the SFBG and its building have been sold for a nice profit - your assertion may be difficult to fact-check.

Posted by Troll II on Jun. 19, 2012 @ 9:50 pm

that you have a budget to hire 1,000 people and then suddenly 1.5% is taken out of that budget. You now can only hire 985 people. That's 15 extra people out of work because of the tax.

Posted by Guest on Jun. 20, 2012 @ 5:45 am

It may not be a 1:1 thing, there may be some elasticity, but it certainly does work against hiring.

When you look at your spreadsheet you are 1.5% more likely to figure out a way to outsource the work or to put the jobs in the San Bruno or Austin offices.

Posted by Troll on Jun. 20, 2012 @ 6:33 am

justify almost every tax and tax increase ever made. A sales tax hike is "only 0.5%" or "only a nickle on a cup of coffee". But add them all up and you have a crushing burden on innovation and enterprise.

Posted by Guest on Jun. 20, 2012 @ 7:07 am

If this tax was such a "crushing burden on innovation and enterprise" then how exactly has San Francisco spawned Twitter, Yelp, Zynga, and dozens more of the country's most innovative and enterprising young companies? This is precisely my point: people aren't applying a basic reality check to these oft-repeated political platitudes. As for the previous points about hiring decisions, a 1.5 percent tax doesn't simply translate into 1.5 percent fewer employees. That's not how these decisions, which are made for a multitude of reasons, are being made in corporate boardrooms. Just look at any CEO survey on location and hiring decisions and you'll see local taxes are way down the list.

Posted by steven on Jun. 20, 2012 @ 1:41 pm