Among the items that received little attention in the Board of Supes budget negotiations were a couple of business tax measures. The Budget and Appropriations Committee signed off and a proposal by Mayor London Breed to delay a gross receipts tax hike for some businesses and to give a temporary break to new businesses that are opening downtown.
The committee also rejected Breed’s plan to reduce a commercial rent tax that funds child care.
Here’s what the Mayor’s Office told the Business Times:
“This is a big win for the city both in implementing smart reforms, but also in sending the message to the business community that San Francisco is working to change how we do business,” said Jeff Cretan, a spokesperson for Breed, on Friday. “There is more work ahead to reform our taxes to make us more competitive, and we are eager to undertake that work, but this will help provide momentum and a signal that we are serious and we can achieve change.”
Breed indicated previously that permanent business tax reform could be in store by way of ballot measure, and Cretan said on Wednesday that effort is still underway.
“We have the comptroller looking at broader tax reform for next year,” he said.
Which means Breed could be putting a tax measure, possibly a very bad one, on the 2024 ballot.
I read that while I was reading stories about the student-loan crisis, the continuing affordable housing crisis, and a New York Times editorial on the crisis of the federal debt. And there is so much more, so many crises defining our lives in San Francisco, California, and the United States today, and I’m going to argue right now that most of them have their roots in the same problem:
There was almost no federal debt in 1980, when Ronald Reagan took office. Over the ensuing years, it’s become a $25 trillion burden, which matters mostly because so much of government spending has to cover interest payments.
That’s largely because of tax cuts for big corporations and the rich.
As the Times notes:
Borrowing is expensive. A mounting share of federal revenue, money that could be used for the benefit of the American people, goes right back out the door in the form of interest payments to investors who purchase government bonds. Rather than collecting taxes from the wealthy, the government is paying the wealthy to borrow their money.
This is the nut of the problem, and it’s something almost nobody seems to want to talk about:
Cutting taxes on the rich and on big corporations—a bipartisan approach at every level of government for half a century—has wrecked the US economy and created almost every major social and economic crisis we are struggling with today.
I am a fan of Thomas Piketty, the French economist, who argues that the growth in economic inequality (along with climate change, which is directly related) is an existential threat to civilization. He also argues, and I have yet to see anyone prove him wrong, that all—all—of the typical approaches to addressing the problem fail.
You can’t solve it, he says, by “training people for the jobs of tomorrow.” In fact, you can’t solve it by education at any level. You can’t solve it by raising the minimum wage. You can’t solve it by economic growth (“a rising tide lifts all boats.”)
There is, Piketty argues, no solution to the problem except using the taxation power of government to take a large amount of money and wealth away from the very rich.
I almost doesn’t matter what you do with that money. You can take it from Bill Gates and Jeff Bezos and throw it all in the Ocean. What matters is that we as a society need to bring down the wealth and income gap, and that doesn’t work unless we start at the top.
This isn’t a revolutionary idea, and (at least in theory) it’s not fundamentally incompatible with Capitalism. (I think a lot of things, including the prevention of climate catastrophe, are fundamentally incompatible with late-stage Capitalism, but let’s put that on hold for a moment.) In the post-War era, most industrialized Capitalist countries including the United States, taxed very high marginal income at 80 percent or more.
That meant people who made millions of dollars got to keep more than enough to live on; they kept enough to have excellent, rich lives. But they didn’t get to keep so much that they were 10,000 times or more better off than the folks who had a union job in a factory.
Not all of that tax money was well spent. The US poured a huge amount into a war in Southeast Asia that killed 50,000 American kids and probably ten times that many Vietnamese, for no reason at all.
But in the end, very few people in society were all that much richer than the rest of us. The US had, and has, serious poverty, but thanks to high taxes and the labor movement, the massive growth in wealth the US saw between 1945 and 1975 was shared not equally, but a lot more equally than it’s been in the past 30 years.
The poverty rate in the US dropped from 22 percent in 1950 to 11 percent in 1973.
The wealth wasn’t shared at all equally along racial lines; Black people were largely cut out of the ability to buy homes and get a decent education and many jobs. As Heather McGhee points out, the racism that has defined the US since its birth still defines why we can’t, for example, have universal health care.
But since the Reagan era tax cuts, all of the new wealth has gone to the one percent. All of it. None of the gains in productivity were shared with the working class.
There are more families in poverty today than ever in US history (and the way the data defines poverty suggests that it’s even worse).
No matter how you look at it, taxes are a defining feature of a civil society. And at every level, this country since the Reagan era has let the very rich control that policy.
This includes California and San Francisco.
Nobody likes to pay taxes, particularly when all we have read about since Watergate is how bloated and inefficient “government” is. I hate to think how much of the fairly modest income I make every year goes to the Pentagon, which is probably the worst waste of money in the history of human civilization.
But a lot of what government does is crucially important, and we could do so much more.
And taxes serve a function other than funding government. In the best scenario, they tend to reduce economic inequality.
Let me make a radical suggestion: If the US, and the state, and the city, had a truly progressive income and wealth tax, there’s no way a house in San Francisco would cost $2 million. Nobody, except a very small few, would ever have the money to pay that much.
Houses would cost what people could afford, and the tech workers who earn $1 million or more a year, and have huge stock options, would pay enough taxes (including taxes on capital gains) that they would not radically out compete teachers and nonprofit workers.
Rents would be a lot lower, in part because landlords and speculators wouldn’t make much net money, after taxes, by evicting tenants and flipping properties.
I am, at the very least, a Democratic Socialist. But you don’t have to be a Socialist to believe in fair taxes. American Capitalism survived just fine between 1945 and 1975.
You just have to understand history and basic economics and have some common sense.
So back to San Francisco.
I’m actually glad that Mayor Breed is talking about reforming the way the city collects business taxes. The city’s tax structure has been a mess for decades.
But let’s start with a few basic assumptions.
Taxes should have two major functions: To raise necessary government revenue, and to reduce economic inequality. Some people say taxes also create “incentives” to change behavior; mostly, this means finding ways to cheat and not pay. There’s very little evidence that tax breaks influence major business decisions like where to set up shop.
So any new tax structure should be comprehensive and progressive—and by progressive, I mean by definition it should take money from the rich and redistribute it to public services that help the non-rich. Here I quote Susan Fainstein: “Equity is by definition redistributive.”
There are lots of ways to approach that.
Generally speaking, in the pantheon of taxes, progressive income taxes are the best, because they hit the rich hardest, property taxes are next, because in general, although not always, people who own property are better off than those who don’t, and sales taxes are the worst, because they are by definition regressive.
Fines and fees, the way they are implemented in most cities today, are also regressive, although they don’t have to be.
Which brings us to business taxes.
The state of California won’t allow local government to tax corporate income. So cities have to find workarounds that fairly estimate the size and profits a company might make. For years in San Francisco, that was a tax on payroll—not a bad estimate for the size of a company. Now it’s mostly gross receipts.
The voters recently raised the tax on companies with gross receipts of more than $50 million to address homelessness.
The city can also tax real-estate transfers, and in most places, that’s a pretty ministerial amount. SF has used it to raise millions for free City College and affordable housing (some of which the mayor refuses to spend).
SF also taxes commercial rents, which the mayor wants to reduce, and uses the money for child care.
I agree: All of these things are somewhat piecemeal. They are also all progressive taxes on big corporations.
If the city wants to change the way it collects taxes, it will have to be creative—unless we can get some changes in Sacramento. There’s nothing anyone can do right now about Prop. 13, which allows commercial property owners to escape billions in taxes. But the Legislature could do a huge thing that would change local taxation and make it much more fair: Allow cities to tax individual and corporate income (profits).
New York, Philadelphia, and some other cities have a city income tax. Done right, we would exempt, say, the first $50,000 of personal income and then scale the rates really steeply, so that nobody who makes less than $150,000 a year would pay much and people who make more than $1 million a year would pay a lot.
All of those high-end earners file itemized deductions anyway, and the local tax is deductible from federal income tax—so in essence, we would be taking money from Washington.
But if we can’t do that—and nobody in Sacramento seems interested in helping cities have more progressive tax systems—then we have to look at what we can do.
The supes shouldn’t let the mayor lead this process. Perhaps the Budget and Legislative Analyst can offer a detailed list of options for comprehensive local tax reform.
But whatever the approach, the outcome has to be based on two things: San Francisco will need to replace declining commercial property tax revenue with other sources, so a tax plan needs to find new ways to raise revenue, not to cut—and it has to have at its basis the concept of taking money away from the rich.
Cities like San Francisco are taking on climate change, as they should and must. But we also should and must be taking on economic inequality. And that, frankly, starts with taxing the rich.