San Francisco is closer than ever to reforming its business tax code to better encourage job growth. Today’s system, which levies a 1.5 percent payroll tax on all businesses with a total payroll in excess of $250,000, has been scrutinized, studied and challenged for a decade, yet no alternative has come close to becoming a reality- until now.
Last week, Mayor Ed Lee and Board of Supervisors President David Chiu introduced a reform measure for the November ballot that will replace the payroll tax with a variable gross receipts tax based on industry-specific rate schedules. Mayor Lee’s proposal is revenue neutral in taxation, but raises the city’s business registration fee revenues from $8 million to $21 million annually to fund affordable and workforce housing. While any change to the city’s tax code will create winners and losers, Mayor Lee is striving to create a tax that is broad based, fair and equitable.
Unfortunately, some members of the Board of Supervisors are trying to hijack the process without any discussion with the business community. Last week, Supervisor John Avalos introduced a competing measure for the ballot. Like Mayor Lee’s proposal, this measure would also transition the city to a gross receipts tax, but it would increase some tax levels as well as raise license fee revenue by a staggering $40 million annually. Supervisor Avalos’ measure would also eliminate existing payroll tax exemptions for biotech, cleantech and Mid-Market companies, just as they are successfully adding jobs to our city.
Under the shroud of the sluggish economy and hoping to ride the coattails of the Occupy Movement, Supervisor Avalos and his SEIU Local 1021 allies have launched a misinformation campaign to further their initiative. They claim that local businesses are not paying their fair share. They say local businesses are costing the city $40 million a year in lost revenue because of “lawsuits and loopholes.” And they are already busy spewing these myths online and on doorsteps across the city.
Nothing could be farther from the truth. Last year San Francisco collected over $400 million in business taxes and license fees, the second largest source of general fund revenues and a 45 percent increase over 12 years, even while employment has fallen to less than 530,000 jobs over the same period. Over the past decade, the city’s tax collections have grown twice as fast as inflation with the Bay Area CPI increasing an average of 2.5 percent per year while payroll tax collections have steadily increased 5 percent annually.
What’s more, San Francisco is collecting more business tax revenues today than ever in its history and much more than most other California cities. In fact, San Francisco collects as much from its payroll tax as Los Angeles does for its gross receipts tax, though its economy is nearly four times larger than ours.
It’s time to set the record straight. San Francisco’s business tax collections are robust by any standard. Local businesses are providing thousands jobs and contributing significantly to our city during these times of continued economic uncertainty. The opportunity for lasting business tax reform is now upon us. Let’s insist that Supervisor Avalos and his allies don’t derail the process.