San Francisco Voters Choose Between a 1000 Percent Tax Increase and a 500 Percent Tax Increase

San Francisco Voters Choose Between a 1000 Percent Tax Increase and a 500 Percent Tax Increase

San Francisco voters head to the polls today for the city’s municipal elections, where they will elect a new mayor and a council member, known as a supervisor. Also before voters is a pair of initiatives that offer the electorate a choice between sharply increasing taxes…and sharply increasing taxes.

Proposition D—better known as the Housing for All initiative—would boost the city’s gross receipts tax on commercial rents from the current 0.3 percent to 1.7 percent (a 460 percent increase). The city controller estimates that the measure will rake in an extra $ 70 million in new revenue, which is earmarked for homelessness services and affordable housing.

The measure has attracted a number of prominent endorsements, including ones from the San Francisco Chronicle‘s editorial board and mayoral candidate and City Supervisor London Breed, as well as pro-development group SF YIMBY, all of whom say the new tax revenue is necessary to address the city’s twin housing and homelessness crises.

But Prop D also has its opponents. Over half of the city’s board of supervisors has come out against it, as has the local chapter of the Service Employees International Union. The San Francisco chapter of the Democratic Socialists also opposes it, dismissing the measure as “a crass attempt to break working class solidarity.”

These critics have thrown their support behind Proposition C.

Like Prop D, Prop C would also boost the city’s gross recipients tax, only it would raise it even higher, to 3.5 percent. That raise is anticipated to generate an additional $ 146 million a year, 85 percent of which would be earmarked for child care services. The other 15 percent would go into the general fund.

Also like Prop D, Prop C has the backing of its own mayoral candidate, City Supervisor Jane Kim.

Because Prop D was put on the ballot by the city’s board of supervisors, it requires a supermajority to pass. Prop C, by contrast, was placed on the ballot by a signature gathering campaign, so it needs only a bare majority to pass. As both are trying to tap the same revenue source, only one can go into effect. Should both measures reach their requisite vote thresholds, the one with more affirmative votes will win.

In the local press, the dueling measures are being described as representative of the left-leaning city’s political fault lines. The San Francisco Chronicle describes Prop D as having the backing of the “moderate wing” of the city’s political class while Prop C is attracting the support of the “progressive bloc.”

The San Francisco Weekly featured a similar analysis, quoting Jason McDaniel, a professor of political science at San Francisco State University, who said, “the dueling propositions reflect a combination of a) the polarization between the two major political factions in S.F., and b) close level of competition between them for control of government and policy.”

Yet at the end of the day, both of these ostensibly polarized factions are supporting the same sort of high taxes to pay for the same sort of government activities. This “fight” between moderates and progressives looks a lot like Coke versus Pepsi.

That’s a shame because both Prop C and Prop D are terrible ideas that deserve to fail.

Gross receipts taxes—which tax all incoming funds as opposed to taking profits—fell out fashion in tax policy circles long ago, given the seeming inefficiency and unfairness of imposing the same tax burden on all businesses regardless of their profitability.

“While buildings cannot leave San Francisco, tenants can. To the extent that this tax would be passed on to tenants, some business tenants might move to other cities, impacting the strength and diversity of San Francisco’s economy,” observed the San Francisco-area think tank SPUR in its June voter guide.

Office rents in San Francisco are the second highest in the nation, behind only New York. The office vacancy rate, at 9 percent, is also much lower than in the wider Silicon Valley (16 percent) and the nation as a whole (14 percent).

This suggests that demand for office space in the city is high and that any increase in taxes on commercial rent will be passed on to tenants, not eaten by landlords. San Francisco’s thriving tech firms can probably survive such a rent hike. Lower margin businesses making just enough money to keep the lights on, however, will find themselves in a much tighter spot.

Both initiatives could fail today, but that seems unlikely. The only groups opposing both measures are the city’s irrelevant Republican Party and the Building Owners and Managers Association of San Francisco (a trade group representing commercial landlords).

Diego Aguilar-Canabal of the Bay City Beacon predicts a loss for Prop D given its supermajority requirement and its failure to attract the support of the business community. That leaves Prop C as the likely winner. Should that analysis prove correct, San Franciscians would be stuck with the worst of two bad options.

Taxes

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