This needs to be the Year of Fighting Economic Inequality in San Francisco, and finding ways to get new revenue from the wealthy to pay for public services is a big part of that agenda. We’ve talked a bit about some ideas that might make sense for the city, but I’ve come across another one – and it has great potential for this city.
Portland recently passed a law raising business taxes on companies that pay their CEOs more than 100 times the median wage of their employees. It’s a modest amount of revenue for that town – probably only a few million a year, which will go directly to services for homeless people. For a lot of people, it’s an important policy statement: City Commissioner Steve Novick called the plan “a tax on inequality itself,” and cited the work of Thomas Piketty, author of Capital in the 21st Century, perhaps the most ambitious economic analysis of the failures of the capitalist system since a guy name Marx took on that task 150 years ago.
Piketty thinks the Portland threshold is too low, and so do I: In the days when the US economy had far less income inequality, CEOs rarely made more than 20 or 30 times the salary of the median worker. (I’m glad to see the French economist weighing in on this; his book, while dense, is brilliant as far as it goes, but is a lot better at pointing out the problems than offering solutions.)
So maybe we look at the Portland ordinance as a starting point, and see if San Francisco can craft a law that not only brings in a lot more money, but makes and even stronger statement.
And, oddly, some tech firms might be just fine with that.
Portland found more than 500 publicly-traded companies doing business in the city. There are more in San Francisco. The SEC recently enacted rules requiring companies to report the ratio of CEO pay to median worker pay, and by next year, when all of the 2016 proxy reports are filed, we’ll start to see data that can be used to enforce that tax.
Meanwhile, it’s not too hard to figure out who would have to pay.
I spent a couple of hours browsing SEC reports on publicly traded companies that do business (or have their HQ) in San Francisco, and if we could craft a tax program that hiked the levies on firms with overpaid CEOs, we’d have plenty of payers.
Salesforce CEO Mark Benioff, for example, made about $33 million last year. It’s a company that pays well – but I doubt the median salary is $330,000. (Remember, the law says “median,” not average – the fact that another half-dozen top execs make more than $10 million at Salesforce doesn’t matter.)
Wells Fargo was founded here, and still does a lot of business in this town. (The bank is also in trouble for cheating its customers.) CEO John Stumpf, before he had to quit, made 130 times the median pay of his workers. Bank of America does business here, and last time I checked, was a city contractor; CEO Brian T. Moynihan reported $15 million of income in the bank’s most recent filing. The median BofA worker clearly doesn’t make $150,000.
Target has a store in San Francisco. Its CEO, Brian C. Cornell, made $16.9 million in 2015. Most of his line workers don’t make much above minimum wage. The CEO of Lowe’s made only 5.2 million last year – but the folks who work in his store on Bayshore Boulevard are not averaging $52,000 a year.
Now, there are exceptions: Facebook CEO Mark Zuckerberg took only $1 in pay last year (although his stock with worth a good bit more and he’s not missing any meals). Twitter CEO Jack Dorsey got no direct compensation in 2015 (but again, he has a huge fortune in company stock).
So those companies might not have to pay the surtax – at least, not the way it’s written in Portland. In the tech world, it’s not uncommon for CEOs who found a company to get more modest direct compensation, since their riches come from the value of the stock they own.
(We can tax that wealth by adding intangible assets to the property tax rolls. That would make Zuck’s $50 billion or so taxable; Twitter has more than $200 million worth of intangible assets, according to its SEC filings. We could also stop singling out the CEO and base the tax on the difference between the five highest-paid executives and the rest of the workforce.)
But let’s take Portland’s example and push it a bit further. Taxing companies that pay their CEO 100 times the median pay of their workers is nice; dropping that threshold to, say, 25 times might actually make a difference.
And Portland added a small surplus – ten percent for CEOs who make 100 times the median pay, 25 percent for those who make 250 percent. And that’s on the city’s 2.2 percent corporate income tax.
San Francisco can’t levy a corporate income tax; the state takes that authority for itself. So we do gross receipts (it used to be payroll). The current business tax varies by category (in fact, “information services” companies pay a lower tax than “scientific or technical services,” and it’s hard to figure out where the likes of Twitter and Facebook fit in. Sup. Eric Mar tried to add a “tech tax” last year, but his idea never got the support it deserved.)
But the Portland idea doesn’t have to be based on an income tax. It can just be a surtax on what we already collect.
What if the city simply amended the gross receipts tax to add, say, a 50 percent surtax on all companies where the CEO made more than 25 times the salary of a median employee? Remember, this isn’t a 50 percent income tax; it’s a hike in the very modest existing tax.
The typical gross receipts tax of a financial-services company with revenue of more than $25 million in the city (say, Wells Fargo or BofA) is 0.56 percent.
So if Wells collected $50 million in receipts in the city last year, it would pay a grand total of $280,000 in local business taxes. (Which, by the way, is ridiculously low). Bump that up by 50 percent and the company’s paying an extra $140,000. Wells Fargo will not close up shop over that surtax.
But multiply that over all the companies that are engaging in active economic inequality and you start getting real cash.
I promise you, this will not impact very many small, locally owned businesses. There aren’t a lot of local merchants that make more than four times the median pay of their workers. Any anyone with gross receipts of less than $500,000 is normally exempt from the tax anyway.
It might very well hit big landlords and real-estate operations that take in lots of cash at the top and pay their low-level workers, like maintenance people, very little. But overall, we’re talking about big corporations here, many of them famous for exploiting labor.
Business taxes will account for about $664 million in the city’s 2017 budget. Let’s say that 5 percent of those companies fall into the category that would pay a surtax (and they would account for far more than 5 percent of the revenue, so let’s say 10 percent). That’s $64 million with a 50 percent surcharge, or $32 million. Funds a lot of services for poor people.
My numbers are just wild estimates, but someone ought to take a look at this; there’s real money here.