Just days after the Board of Supervisors unanimously endorsed a measure that would change The City’s business-tax structure from a payroll tax to a gross-receipts tax, I got an email from a dear friend with the subject line, “HA HA!”
It contained a link to a column written by the president of the Los Angeles Chamber of Commerce titled, “Let’s wave goodbye to the gross-receipts tax and hello to new jobs.”
It seems that just as San Francisco voters are about to be asked to adopt a gross-receipts tax system, Los Angeles is fighting to get out of its version of the tax. The L.A. City Council will vote in the next 30 days on whether to phase out that city’s tax altogether.
A February report by the Los Angeles Business Tax Advisory Committee called the current system “unpopular” and “confusing” and blamed the scheme for the city’s 14.6 percent unemployment rate. It claimed that the “rates are too high” even though the city’s maximum rate pales in comparison to what is being proposed in San Francisco. Theirs is 0.507 percent; ours would be 0.65 percent.
There is a sisterly history of taxes in San Francisco and Los Angeles. For decades, both cities had two business taxes — a gross-receipts tax and a payroll tax. Companies had to calculate their tax bill under both systems and pay whichever was higher.
In 1999, a judge ruled that such systems are unconstitutional, so each city was forced to choose one method of taxation. San Francisco chose the payroll tax and Los Angeles chose the gross-receipts tax.
So, what happened?
In Los Angeles, adopting the gross-receipts system has proven Byzantine and unfair. The system taxes service-oriented companies more heavily than real estate, retail and hospitality, all of which consume comparatively more city services, burdening the growth industries that are most portable. In the past 30 years, those industries have lost 165,000 jobs in Los Angeles while that city’s population has grown by 825,000 people. Meanwhile, neighboring cities have added 514,000 jobs.
In San Francisco, employers anecdotally claim that they hire fewer people because of the payroll tax, but the City Controller’s Office has never cited a study showing that payroll taxes are any worse than gross-receipts taxes in this regard. Lloyd Greif, chairman of the Los Angeles Business Tax Advisory Committee, has seen the July 2012 report on the gross-receipts proposal by the city controller.
“I kind of chuckled to myself when I saw it,” Greif said. “The office just kept quoting itself. We had three independent economists do extensive studies in Los Angeles, and San Francisco had none. I was underwhelmed by the research, to say the least.”
I explained to him that biotech companies and other startups operate with lots of employees but little or no output when, for example, developing a drug that takes years to bring to market. In the meantime, these companies are being stretched by paying taxes for employees.
“You don’t solve one problem by creating a myriad of other problems,” he said. “Just address these niches separately as opposed to hosing every other company.”
I’m not crazy about the payroll tax, but any tax on business is bound to make employers howl. The alien “City Family” wants us to trust that having the highest gross-receipts tax in California is supposed to make us more desirable. Los Angeles is proof to the contrary.
“My colleague handed me a copy of the proposal at one of our committee meetings,” Greif said. “I shook my head and said,
‘I feel sorry for San Francisco if they do this.’”
Supporting Mirkarimi could cost Mar in supervisorial election
Now that the Ethics Commission has recommended that two of the charges against suspended Sheriff Ross Mirkarimi be sustained, it is up to the Board of Supervisors to vote to remove him.
Every writer in town has suggested that the board’s vote will come down to a handful of progressive supes. Well, those supervisors might be interested in the results of a mid-August poll commissioned by advocates of domestic violence prevention, including Janice Mirikitani, founding president of Glide Memorial Church.
Overall, 51 percent of the poll’s 500 respondents said they would be less likely to vote for a supervisor who votes to let Mirkarimi retain his position as sheriff. Among Asians, that number was 58 percent and among whites it was 56 percent.
Only 44 percent of blacks and 29 percent of Hispanics would be less likely to vote for a candidate who supports Mirkarimi.
In one supervisorial race, this is already a campaign issue. Supervisor Eric Mar, who represents the heavily Asian District 1, is a progressive in a tight re-election race against challenger David Lee.
On Sunday, Lee took to Facebook and Twitter to ask, “How should our current Dist 1 Supervisor vote?”
I spoke with Lee’s campaign manager, Jim Ross, who told me that this is far from the last we’ll hear about this subject on the campaign trail.
“It’s an interesting issue that could go away real quick if he’ll just say, ‘I’ll vote for removal,’” Ross said. “He has to decide between his Burning Man buddies and Richmond district residents.”