The right business tax

Is it even worth launching a ballot measure campaign for $13 million?

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EDITORIAL In some ways, the battle over San Francisco's business tax represents a shift in the local power structure: For most of the past 30 years, the finance, insurance and real-estate industries — the traditional downtown corporate leaders — called the shots at City Hall. Any honest list of the most powerful people in town started with bankers and real-estate developers, and most of the time, they got their way.

Now, under Mayor Ed Lee, the tech sector is starting to eclipse the old guard. Venture capitalists like Ron Conway have the mayor's ear, and companies like Twitter are getting the favorable tax breaks. And the tech sector, which tends to have high payroll costs, is agitating for a shift from a payroll to a gross-receipts levy, arguing that the existing tax is a "job killer."

The gross-receipts plan is probably a better way to go, if only because the current tax applies only to a small percentage of the city's businesses (although most of those who are exempt are small businesses). But a 1.5 percent tax on payroll isn't a job killer any more than a modest tax on gross receipts is a brake on growth. Both are rough, imperfect but satisfactory ways to approximate the size of a company — and since a California city can't legally impose a corporate income tax, that's about the best San Francisco can do.

The real issue isn't so much about the form of the tax — just about everyone at City Hall is good with switching to gross receipts — but about the total net revenue the city's going to get out of the deal. The mayor's willing to ask the business community to come up with an additional $13 million a year — less than half of one percent of the city's General Fund and only about a 3.5 percent increase in the current business-tax revenue. It's a tiny number — and since it's based on projections, it could wind up disappearing altogether in a down economy.

The real cuts in the General Fund over the past five years — that is, the program reductions — amount to close to a billion dollars. By any rational estimate, the city needs at least $250 million a year in new revenue to keep pace with local needs and to begin to restore some of the lost services. Mayor Lee's proposal is a pittance.

The alternative, suggested by Sups. John Avalos, David Campos, Jane Kim and Eric Mar, would add $40 million in new revenue. That's enough to make up for what the city lost when 52 big businesses sued over the old business tax in 2001. It's still, however, a very modest tax increase (particularly considering that the tax base would grow from 7,500 to 33,500 businesses). And while the mayor and the four progressive supervisors are in talks about combining forces and putting a single plan before the voters (which would be the best approach by far), Avalos and his allies need to remain firm: The mayor's $13 million is far too little. It barely counts as a new revenue measure at all.

We agree that winning voter approval for a local tax hike will be challenging — but this is the perfect time to do it, with a high-turnout presidential election. And if all the city can get is a paltry $13 million a year out of the deal, you have to wonder: Why even bother?

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