Twitter, tax breaks and the New York Times

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Just about everyone who watches news media is calling it the Story of the Week, and it's probably going to be one of the top stories of the year, my (informal) nominee for a Pulitzer: Louise Story at the New York Times exposes how corporate America shakes down state and local governments -- who often get little in return. The biggest perp over the years has been the automotive industry, which Story says first perfected this kind of blackmail (though Southern Pacific Railroad did pretty well in its day). But now just about every big company tries to demand a tax break or threatens to leave town.

In in the end, there's no evidence that tax breaks, or the lack of tax breaks, is the most important factor in corporate relocations. There's even less evidence that all these billions of dollars in public money actually help create jobs, pay for themselves, or are the best way to invest in economic development:

One corporate executive, Donald J. Hall Jr. of Hallmark, thinks business subsidies are hurting his hometown, Kansas City, Mo., by diverting money from public education. “It’s really not creating new jobs,” Mr. Hall said. “It’s motivated by politicians who want to claim they have brought new jobs into their state.”

It's hard to imagine any sane person reading all the way through the story and now wanting to feel like this poor guy:

“I just shake my head every time it happens, it just gives me a sick feeling in the pit of my stomach,” said Sean O’Byrne, the vice president of the Downtown Council of Kansas City. “It sounds like I’m talking myself out of a job, but there ought to be a law against what I’m doing.”

Story even weighs in on San Francisco's deal with Twitter, which, she notes, was hardly a struggling startup at the time:

Twitter was not short on money — it soon received a $300 million investment from a Saudi prince and $800 million from a private consortium. The two received Twitter equity, but San Francisco got a different sort of deal. The city exempted Twitter from what could total $22 million in payroll taxes, and the company agreed to stay put. The city estimates that Twitter’s work force could grow to 2,600 employees, although the company made no such promise. ... Like many places, San Francisco has been cutting its budget. Public parks have lost about $12 million in recent years, though workers at Twitter will not lack for greenery. The company’s plush new office has a rooftop garden with great views and amenities. Enjoying the perks, one employee sent out a tweet: “Tanned on Twitter’s new roof deck this morning as some dude served me smoothie shots. This is real life?”

Randy Shaw, who loves and worships Twitter and the tax break it demanded, takes the Times to task on this section, arguing that Story got the deal wrong. Actually, neither of them has the true story -- what Twitter was most freaked about was the prospect that the city's payroll tax might apply to the huge wealth in stock options it will be dispensing when it goes public. That's about a $40 million tax break.

So what if the city just said that it wasn't going to tax stock options as payroll? Wouldn't that have satisfied Twitter -- without the city giving up payroll taxes on a large swath of mid-Market and surrounding areas? Could we instead have used some of that payroll tax money to protect the vulnerable small businesses that are getting forced out by the Twitter tech boom?

In the end, considering the pluses and minuses (displacement of existing small businesses and their jobs is a minus), will this dead really help create net new jobs for unemployed San Franciscans? (At least automotive manufacturing jobs are unionized and people without advanced degrees can qualify.)

I bet when the numbers are all crunched a decade from now, we'll learn that this local tax break, like the others Story discusses, did nothing good for San Francisco.

 

 

Comments

to stock options because there is no way that the speculation inherent in options is remotely similar to a steady paycheck.

But it's also true that municipalities need profitable enterprises more than those enterprises need municipalities. After all, IT and knowledge work is highly mobile since the only asset is the people. And SF would never have bribed Twitter if they had figured that they didn't need to.

A place like SF can afford people like you and the weird views that you hold, but only because there is so much successful business here, despite your worst efforts, that we can actually afford indulgent irrelevancies like you and the SFBG. Ask Detroit how many middle-aged white journalists there are there preaching socialism. No need, I can tell you - none.

Posted by Guest on Dec. 03, 2012 @ 4:11 pm

The Twitter business model is identical to Zynga, Facebook et al. which is to corrupt politicians and pension fund advisors to purchase hyper inflated trash before it crashes, and relieve retirees of their retirements, because Republicans hate it when old people avoid working themselves to death.

Posted by Guest on Dec. 04, 2012 @ 7:00 am

What, the time sponge product is not the basis for a sound, ongoing profitable business?

Posted by marcos on Dec. 04, 2012 @ 7:59 am

Contrary to what the SFBG believes, the Twitter deal has already had an enormous beneficial effect on Mid-Market, and, by extension, the City. For decades this has been one of the skankiest, most dangerous, most awful areas of the City. Boarded up buildings and all the social pathologies on the City's grandest street. The tax deal helped convince Twitter to stay in the City as opposed to move to San Mateo County. The result is numerous others finding the confidence to move into this neighborhood. There's enormous investment now happening on this street that the City, in spite of all its "plans" and intentions, NEVER made happen. Yes, prices and rents are rising. Should we return to the crime, filth and dysfunction of the old Mid-Market?

Posted by Guest on Dec. 03, 2012 @ 4:24 pm

he genuinely believes that having drug-dealers and hookers and homeless hanging out there all day is better than successful businesses creating prosperity.

Unless and until you understand Tim's upside-down view of the world, you'll never understand the root of his craziness.

Posted by Guest on Dec. 03, 2012 @ 4:36 pm

neighborhood. Someone who had to leave. Yes I like the development better than boarded up storefronts and drug dealers but there were actual communities of people once living in the area who called it home who no longer are no longer able to do so.

We should remember that just because WE like it better doesn't mean it's better for everyone. Oftentimes displaced communities were vibrant, social places which are sterilized in gentrification's wake. That's a sad but true reality.

Posted by Lucretia Snapples on Dec. 03, 2012 @ 5:06 pm

Snapples is that you?

Posted by Guest on Dec. 03, 2012 @ 6:15 pm

My views are more nuanced than many people believe. I am a creature of many hues.

Posted by Lucretia Snapples on Dec. 03, 2012 @ 6:46 pm

...black and blue. Ah, Lucretia! Ah, humanity!

Posted by Hortencia on Dec. 05, 2012 @ 8:13 am

and demand that nothing ever change ever is equivalent to him asserting that SF should go back in time 60 years when, er, SF was a Republican town.

Oops.

Posted by Guest on Dec. 03, 2012 @ 6:34 pm

The Republicans of 60 years ago are in many ways more progressive than anyone in office today.

Posted by marcos on Dec. 04, 2012 @ 6:13 pm

more concerned about the citizens as a whole than progressives.

Progressives have a very narrow base as compared to republicans of 60 years ago.

Posted by matlock on Dec. 04, 2012 @ 7:43 pm

"Oftentimes displaced communities were vibrant, social places which are sterilized in gentrification's wake. That's a sad but true reality."

I don't think anyone could call mid- market a vibrant social place- unless you are talking about social drug dealing, pimping, and panhandling.

Posted by D. Native on Dec. 04, 2012 @ 8:41 am

Once Twitter goes public and then crashes and burns like Zynga and Facebook people will be able to see the tax break for what it really is, just another fraudulent scheme to part retirees with their life savings.

Until then we have to put up with Ron Conway and his bought and paid for politicians, minions and lackeys and their convoluted and dishonest denials and rationalizations.

Posted by Guest on Dec. 04, 2012 @ 6:55 am

Let's just hope that we can qualify a ballot measure in time to make up for Prop E's not taxing startups so that when they do go public, the City can get its share having provided services for free for these speculative ventures.

You can pay us up front, pay us at the end, but you can't not pay us for covering your costs to us over the time that you're preparing to raise billions in capital.

Posted by marcos on Dec. 04, 2012 @ 8:03 am

and then you'd get nothing at all, not even the intangible and indirect benefits of having a world-class enterprise in your town.

It was precisely because SF realized that it needed Twitter more than Twitter needed the city, that the Supes were forced to cave on taxing them in the first place.

Posted by Guest on Dec. 05, 2012 @ 9:58 am

California's repressive tax regime is why the superstar companies of the new economy are headquartered here. For all of the incessant caterwauling about how taxes cause businesses to flee, profitable businesses sure like it in high tax states like CA and NY.

Of course, Twitter is not yet profitable, and like Zynga will probably serve as a gargantuan sucker trap for gullible investors. That is the stuff upon which to build a sustainable economy, by subsidizing swindles.

Posted by marcos on Dec. 05, 2012 @ 10:17 am

relocate just because of tax and that, in Twitter's case, that they do.

And that you want them to pay more tax even though you think they will fail.

Posted by Guest on Dec. 05, 2012 @ 10:29 am

Yep, in the game of speculative musical chairs, you get what you can while the getting is good because we've seen what happens when the music stops.

Just 8 years ago, wild eyed leftist radicals like Susan Leal, Fiona Ma and Gavin Newsom extended the payroll tax to include stock options. Now that there is no payroll tax, we should float a ballot measure that reimposes a tax on stock options so that the free ride these firms have without gross receipts to tax does not last past the issuance of stock. We're fronting city services to these speculative ventures and we'd better damn well get paid when they do.

Posted by marcos on Dec. 05, 2012 @ 10:34 am

The biggest concumers of city services are non-taxpayers who don't contribute:

the homeless
criminals
the very old and very young
the unemployed
the sick

Businesses need relatively little from the city - just fix the streets and public safety unless they use their own security, which many firms do. In fact, city ruels and regs impede businesses more than they help.

So don't dress this up as "paying their fair share". They pay the most and get the least back. It's wealth redistribution - plain and simple.

Posted by Guest on Dec. 05, 2012 @ 10:48 am

pays sales taxes or property taxes (even if they rent). And most homeless and criminals become that way for economic reasons. Of course, you left out the corporate criminals who crashed the economy. So once again, your argument is bunk.

I'm sure you'd gladly force the very old, the very young and the sick to work at some low wage that you would claim reflects their worth.

Posted by Eddie on Dec. 05, 2012 @ 11:05 am

businesses aren't paying for the city services that they use. In fact, they pay for far more services than you use.

Whether they should is another question, of course. But don't dress this up as businesses not paying for their own services - instead admit that you want them to pay for their services AND the servcies to many others.

Posted by Guest on Dec. 05, 2012 @ 11:13 am

here, the idea that if businesses have private security that they don't use public safety assets of the city. Private security *always* calls in the SFPD if a crime has been committed.

Efin ridiculous, Guest. Face it: you are so out of touch with reality that you seem insane.

Posted by lillipublicans on Dec. 05, 2012 @ 11:30 am

Employees of firms located in the City use city services, transit, DPW, Rec and Park, etc., but you expect that employees should go into hock just to get to work in the libertarian Dickensian dystopia which you're foisting on San Francisco.

Posted by marcos on Dec. 05, 2012 @ 11:07 am

but even then, those things could be paid for from a different revenue stream that is from SF residents and not just those who happen to work here but consume no services.

And you'd get to tax those who live here but work elsewhere like in, say, Brisbane ;-)

Posted by Guest on Dec. 05, 2012 @ 11:14 am

Contrary to your Fox News blather, The Planning Department stipulates to the fact that employees of businesses located in San Francisco consume city services and that those businesses pay business tax to cover the cost of providing those services.

Posted by marcos on Dec. 05, 2012 @ 11:22 am

It's blatantly obvious that someone who commutes into the city 9 to 5 consumes far less in services than someone who lives in Sf and works elsewhere.

Posted by Guest on Dec. 05, 2012 @ 11:55 am

Right, you don't want to see a piece of paper, with numbers on it, you just believe what your economic sharia tells you must be true.

Posted by marcos on Dec. 05, 2012 @ 12:19 pm

Someone who lives in Oakland and works in SF is consuming little or no city services here. Probably limtied to walking a hundred yards from the BARt station.

It's the balkanization problem I outlined earlier.

Posted by Guest on Dec. 05, 2012 @ 12:30 pm

It is not feasible for Muni to only run short buses to carry your type.

Posted by marcos on Dec. 05, 2012 @ 12:42 pm

never take a bus anyway. We're debating whether we should throw good money after bad at a failing product and we are fortunate that the Supes saw fit to limit that largesse.

Posted by Guest on Dec. 05, 2012 @ 12:53 pm

thought that a payroll tax would simply be reinstated as soon as their backs were turned.

And it makes sense not tot ax stock options with a receipts tax because the revenue has already been collected.

Any payroll tax that looks too much like a closet income tax would be challenged in the courts, since SF is prevented by State law from imposing a local income tax. And thank god too, or they'd be milking that gravy train the way they do in places like Detroit and DC.

Posted by Anonymous on Dec. 05, 2012 @ 10:57 am

Voters would have to approve a stock option payroll tax and probably would. It would be fucking hilarious to see how much money Conway and his libertarian coterie would throw to stop such a measure. We'd win even if we lost. Given the pathetic turnout for the 2011 mayor's race, the bar for filing initiative petitions is still attainably low.

Posted by marcos on Dec. 05, 2012 @ 11:10 am

and then turn around and reimpose a payroll tax. Voters aren't stupid.

Posted by Guest on Dec. 05, 2012 @ 11:28 am

Nobody is talking about taxing payrolls, just in following Newsom, Leal and Ma's lead and taxing stock option grants once they're viable.

Posted by marcos on Dec. 05, 2012 @ 11:41 am
Posted by Guest on Dec. 05, 2012 @ 11:58 am

No, the measure repealed the payroll tax, the option tax was repealed for the mid-market area last year. I'd love to see a reinstatement of the options tax on an upcoming ballot, using Newsom, Leal and Ma's language to help reinstate it.

Posted by marcos on Dec. 05, 2012 @ 12:17 pm

1) The services consumed are the same regardless of whether options are exercized or not.

2) Most IT options exercizes are for companies located outside of SF. Even if SF residents enjoy them, you can't tax that. While you are taxing people who work in SF but don't live here or consume services.

There has to be a tight connection between any tax and consumers of services.

We've now got a receipts tax - we need time to see how that will work out.

Posted by Guest on Dec. 05, 2012 @ 12:28 pm

Because we can.

Posted by marcos on Dec. 05, 2012 @ 12:42 pm

Wishful thinking and envy are neither a pretty nor an effective combination.

Posted by Guest on Dec. 05, 2012 @ 12:52 pm

goes belly-up?

Got to run. I have to answer the door for my Webvan order.

Posted by Eddie on Dec. 05, 2012 @ 10:17 am

I'd have thought that was obvious.

Posted by Guest on Dec. 05, 2012 @ 10:28 am

Buy low, sell high, there is tremendous demand for all things San Francisco, so why are we giving away development entitlements and tax breaks for cheap?

Get some gonads at the negotiating table and tell them that they can take US-101 or I-280 south or I-80 or US-101 north if they don't like the way we run things in the most desirable spot to live, work and play on the west coast.

Posted by marcos on Dec. 05, 2012 @ 10:33 am

What's your next great idea for redistributing wealth?

Posted by Guest on Dec. 05, 2012 @ 10:45 am

The City did not call anyone's bluff, they folded like chairs, went down like $3 whores, ran the City like a business, only like the that they were negotiating with across the table.

Posted by marcos on Dec. 05, 2012 @ 11:08 am

Because they only had to move a few miles.

Maybe they wouldn't have moved to Nevada but the Brisbane option was real. The city had no choice.

Posted by Guest on Dec. 05, 2012 @ 11:29 am

The cost to transport all of those grumpy sweatshop employees to Brisbane would have been equivalent to the tax. I can't wait to see a tax on stock options on the ballot.

Posted by marcos on Dec. 05, 2012 @ 11:40 am

This stuff isn't hard to figure out.

You will have to wait for your payroll tax. But i guess we can always get rid of the receipts tax ;-)

Posted by Guest on Dec. 05, 2012 @ 11:57 am

If the entitled and smug would return to whence they came, If the developers and greedy could be checked. If rents would stop going up to accommodate people with suburban attitudes and tastes. I would take a grimy and skanky mid-Market any day of the week.

Posted by Guest on Dec. 07, 2012 @ 6:13 pm

You want everyone to leave SF for the purely selfish reason that you find it hard to afford to live here. And instead of accepting that you'd be better off living someone else, instead you want the rest of us to leave to suit yourself.

Posted by Guest on Dec. 07, 2012 @ 6:50 pm