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News + PoliticsBusiness + TechThe city has a new business tax plan—which doesn't address economic inequality

The city has a new business tax plan—which doesn’t address economic inequality

We can tinker with 'revenue-neutral' changes, but SF is facing a massive fiscal crisis, and the big corporations and billionaires are still not paying their fair share.

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The San Francisco Controller’s Office and the Treasurer and Tax Collector have released a detailed report on proposed changes to the city’s business taxes, which is a fine idea. But you can get a sense of where the report goes from this paragraph:

CON, TTX, and OEWD also provided individual briefings to several groups of businesses upon request, including SPUR, Hotel Council, Bay Area Council, Small Business Commission, Golden Gate Restaurant Association, construction companies, commercial property owners, retail businesses, the San Francisco Apartment Association, and the Chamber of Commerce.

That’s a perfect group to talk to—if the idea of making big business and rich people pay a larger share of taxes is not on the agenda.

From the Tax the Rich Facebook page https://www.facebook.com/taxtherichnow/

The authors of the report also met with city labor unions, and with some service providers.

But there was not a lot of outreach to anyone who is organizing or working for tax reforms that seek to address economic inequality.

Kyle Smeallie, chief of staff for Sup. Dean Preston—who has worked consistently to make the local tax system more progressive, said the office received a briefing, but was not part of the discussions around the policies.

I see no indication that the authors of the report reached out to, say, the local chapter of Democratic Socialists of America, or the folks who have organized for higher taxes on real-estate speculators and the biggest businesses in town.

The result is, as this point, a proposal that is revenue-neutral—that is, is doesn’t call for big businesses or commercial landlords to pay any additional taxes, which means it will do little to help the city’s looming and very real financial crisis.

The report notes that the revenue mix is a policy matter for the supes:

Our offices are not making any recommendation regarding the revenue target of an ultimate proposal, and rates can be adjusted to achieve different outcomes. Based on our modeling, the rates outlined in this interim report would have yielded an equivalent amount of revenue to what was owed to the City in 2022 for the taxes considered in this report. The recommendations in this report do not significantly alter the number of businesses paying the taxes.

It also makes clear that the goal is to reduce taxes on the biggest corporations, to avoid “volatility” in the market:

The decrease in tax liability for the largest businesses, with San Francisco Gross Receipts exceeding $1 billion, is connected to one of the primary goals of the proposal, to reduce the City’s over-reliance on taxes paid by a small number of large businesses. In 2022, five businesses paid $336 million, or 28% of total revenue from Gross Receipts Tax, Homelessness Gross Receipts Tax, and Overpaid Executive Tax combined. The ten largest paid $436 million or 37%, and the 100 largest paid $768 million or 65%. Under the proposal, because of the reduction in tax liability from the largest businesses, these percentages are expected to decline somewhat. The five largest would pay 23% of the total, instead of 28%, and the top 10 would pay 32%, instead of 37%.

That’s really the definition of regressive taxes—the biggest would pay less, and the burden would be spread around.

I get that if only five corporations paid most a huge tax burden, and they were to leave or fold, it would have a massive impact. I also get that the city is trying to reduce the tax burden on small businesses, which are still suffering from the pandemic.

And these days, with remote work, the report says it makes a certain amount of sense to shift away from payroll taxes and towards gross-receipts taxes. (The state won’t allow us to impose corporate income taxes.)

Before remote work, I thought payroll taxes were a better metric from the success of a company (some tech startups have huge payroll and almost no gross receipts; supermarkets have high gross receipts but low profit margins). If we tax payroll at the corporate level, not at the point where the person is physically working, it might still be a better tax.

We can argue all those finer points.

But tax policy is more than just revenue-generation. It’s about economic inequality.

High marginal income taxes in the post-War era (up until Reagan) reduced the number of very rich people and helped create a middle class. (Those taxes also paid for, among other things, free college education for many, the Great Society Program, and War on Poverty, and a relatively stable welfare state.)

The revenue was important. So was the redistribution. Thomas Picketty, the greatest economist of the 21st Century, argues that it’s almost as important to take money away from the very rich as it is to give it to the poor; the goal here is to reduce economic inequality, and that starts with fewer billionaires, who drive up the price of everything.

So local tax policy should also be about economic justice—and this set of proposals didn’t start from that perspective, and didn’t reach that goal.

There is great wealth in San Francisco. According to the San Francisco Business Times 2024 Book of Lists (a valuable resource; I pay for a subscription in part for this), Wells Fargo, based in SF, had revenues of $73 billion and profits of $21 billion in 2023. Visa, based in San Francisco, had revenues of $29 billion, and profits of $14 billion. (Seriously, that’s a profit of almost 50 percent; most small businesses would be thrilled with 10 percent.) Salesforce: Revenue of $31 billion, profit of $208 million.

Despite the market, CBRE Commercial Real Estate had revenues of $20 billion. JLL: $18 billion. Cushman & Wakefield: $9 billion. Compass residential real estate: $24 billion. Coldwell Banker: $12.9 billion.

The top five residential real estate brokers in San Francisco—five people, not five corporations—grossed $703 million.

There are, according to the latest figures from Forbes, 68 billionaires in the city.

(I have long advocated a city income tax, which the state doesn’t allow right now. I’ve been asked what happens when all the billionaires move out of town to avoid that tax. It’s an interesting question: Would most San Francisco residents and workers be better off if the very rich left town? Honestly, I think we might; I don’t think building more high-end condos will bring down housing costs, but a massive outflow of rich people could.)

The city is going to lose a huge amount of revenue in the next few years from assessment appeals, that will cut property taxes downtown, and reductions in downtown sales taxes.

This is a crisis, and it’s either going to mean big cuts in essential services—or a new tax system that is anything but “revenue neutral.”

To do that right, we need to start with the axiom that Harvard Professor Susan Fainstein coined in her book The Just City: “Equity is by definition redistributive.”

Maybe we start with that.

48 Hills welcomes comments in the form of letters to the editor, which you can submit here. We also invite you to join the conversation on our FacebookTwitter, and Instagram

Tim Redmond
Tim Redmond
Tim Redmond has been a political and investigative reporter in San Francisco for more than 30 years. He spent much of that time as executive editor of the Bay Guardian. He is the founder of 48hills.

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