S.F. voters may see 5 tax hike measures on November ballot.
Measures to test attitudes toward recession, big businesses
San Francisco voters could be weighing as many as five tax hike measures this fall, in what will be a test of how the coronavirusfueled recession influences attitudes on economic growth and whether the city’s big businesses are paying their fair share.
Four of the five taxincrease proposals — which have been placed on the November ballot but could still be withdrawn up until the end of July — were rooted in the preCOVID days of 2019 when the city was flush with cash, the hotels were packed with business travelers, unemployment was about 2% and the growth of tech companies seemed limitless.
Now the city faces a dramatically different economic landscape: a $1.5 billion deficit over the next two years, 12.6% unemployment and the flight of thousands of tech workers, many of whom are leaving the highpriced Bay Area to work remotely from more affordable locations.
While probusiness groups argue that the current health and economic crisis is exactly the wrong time to introduce new taxes, members of the progressivedominated Board of Supervisors say the city will need the additional revenue to continue providing essential services.
“We are in a crisis where we are going to have (blown) a hole in our essential health response system unless we ask some companies to help out a little more,” said Supervisor Matt Haney. “And these companies can pay a little bit more. These companies spend that much on lunch.”
Haney, along with Supervisor Hillary Ronen, is behind one of the three revenue measures: a tax on CEOs earning at least 100 times the median income of their average worker. The tax could apply to companies such as Wells Fargo, Visa, Gap Inc., Comcast, Bank of America, JP Morgan and
Chipotle, according to Chronicle research and the city’s chief economist, Ted Egan.
It would raise as much as $140 million annually.
Another measure, by Supervisor Gordon Mar, would put a 1.12% payroll tax on stockbased compensation and is expected to raise $50 million to $150 million. It would apply to any public company that issues stock options or other equity grants to its employees.
A third, by Supervisor Dean Preston, would double the transfer tax from about 3% to 6% for residential and commercial properties sold for more than $10 million. Some of the revenue from that measure would go to help compensate small landlords who were unable to collect rent because their tenants lost income because of the coronavirus.
The fourth and fifth measures, the most comprehensive and complicated, are two competing proposals to overhaul the city’s gross receipts tax, one by Mayor London Breed and the other by the Board of Supervisors. Both proposals would simplify the tax code and eliminate what remains of the city’s payroll tax, which was meant to be phased out over several years but has lingered because the gross receipts tax did not raise enough money.
And both versions would unlock money from Proposition C, the 2018 successful ballot measure taxing big business to fund homelessness programs. While the city has been collecting the Prop. C money, it has not been able to spend it because of a lawsuit over the measure’s margin of victory. Both gross receipts tax reforms would give companies a tax break if they agree to let the city keep the Prop. C money, even if the courts strike down the measure and order the funds to be repaid. Prop. C has been bringing in $250 million to $300 million annually.
The difference is that Breed’s proposal “contains no significant tax increases,” while the board version would generate about $181 million a year in additional tax revenue.
Business leaders are giving all the proposed tax increases a thumbs down. Jay Chang of the San Francisco Chamber of Commerce said the board’s version of the gross receipts tax would punish lowmargin businesses that have lower payroll but high gross receipts. These industries include hotels, restaurants, auto dealerships and grocery stores.
“Of course I’m against it,” said Sal Qaqundah, who owns Arguello Market, a small grocery store in the Richmond District. “Every time you turn around, there is a new tax.”
Under the proposal, hotels would pay an estimated 13% more.
Kevin Carroll, executive director of the Hotel Council of San Francisco, said the taxes would make it harder to reopen the industry, which — before the pandemic — employed 24,000 workers and paid $440 million a year in room rate taxes.
“Our industry is already devastated because of COVID,” he said. “Any new taxes or additional costs would keep us from hiring back our employees. For our industry, even suggesting new taxes doesn’t make sense. If anything we should be looking at ways to reduce taxes.”
Jennifer Stojkovic, executive director of tech advocacy group sf.citi, said it’s not a good time to add taxes “while we are facing the real possibility of an exodus of the tech industry in San Francisco.”
“Adding a whole bunch of taxes all at once when we are in the middle of massive layoffs is the wrong direction to go in,” Stojkovic said. “We want to focus on economic recovery. How are we supposed to recover if we are getting hit with new taxes at the ballot every six months?”
San Francisco companies that have announced major layoffs include Uber, Airbnb, Lyft, Zenefits, Eventbrite, Lending Club and Sonder.
Still, it’s unclear how many of these measures will actually end up on the ballot. Supervisors often put measures on the ballot early in the summer as bargaining chips, and the stockbased compensation may play that role, according to City Hall observers. Either the mayor or the supervisors pushing the higher revenuegenerating version of the grossreceipts tax could agree to pull their measure in exchange for changes to the other measures.
Haney said that “nobody wants to see two competing gross receipt measures on the ballot” and that he is convinced a compromise will be struck. Mar denied that the stock compensation measure is a bargaining chip, adding that it’s “a good proposal and has the support of the public and my colleagues.”
Jason McDaniel, an associate professor of political science at San Francisco State University, said the political climate favors populist taxes that squeeze more money from big business. After a decadelong boom that has made San Francisco the most expensive city in the country, it will be tough to make most city voters sympathize with large corporations that are suddenly suffering, he said.
“All the energy would be with progressives on this right now,” he said. “I don’t think the fiscal future of big business is something people are worried about. It’s about protecting small business, health care, teachers, the community.”
Jim Stearns, a veteran progressive political operative, said the taxes are all neatly crafted in such a way that they target a narrow group of wealthy businesses and individuals and not average renters or homeowners.
“It is absolutely clear from every poll I’ve done that people really want to tax the wealthy,” he said. “People are livid about the gross disparity in wealth. They are getting unemployment, or still waiting to get unemployment, and wondering how they are going to pay their rent. And then they see that Jeff Bezos made $5 billion during the pandemic.” The Amazon CEO’s net worth has actually increased by more than $50 billion since the shelterinplace orders went into effect.
Laurie Thomas, a restaurant owner who is executive director of the Golden Gate Restaurant Association, said the situation is more nuanced and urged the board to hold off on new taxes until the fallout from the coronavirus is better understood.
“We have a hurting city right now,” she said. “Many of us have had to lay off our workers. Owners have not taken compensation, have not been able to pay their bills. We have all had to radically rethink how we do business. I don’t think a tax increase in any sector is going to be helpful.”