Sensible tax reform compromise a victory for mayor 

Mayor Ed Lee has been taking it on the chin lately. He was accused of perjury stemming from his testimony in the case of suspended Sheriff Ross Mirkarimi. His deal with the California Pacific Medical Center to build a new hospital on Cathedral Hill has stalled. And his plan to import New York City’s stop-and-frisk policy, which encourages the police to detain and search people for guns, was unanimously and rightly denounced by the Board of Supervisors.

So it’s been a tough few weeks for the mayor. Now it’s time to point out a very real accomplishment.

For years, San Francisco has imposed a 1.5 percent payroll tax on local businesses. The tax is loosely designed to assign a levy based on the size of the business, and it generates roughly $400 million in revenue a year.

But San Francisco is the only city in California that deploys such a tax, which critics have appropriately criticized for unfairly discriminating against certain types of businesses. By taxing companies based on their payroll, The City is effectively punishing sectors such as technology or food service that hire more people — behavior that this or any city should encourage. Meanwhile, other industries such as finance and real estate generate far greater amounts of revenue than their relatively meager payrolls would indicate.

After years of talk about this problem but little action, Lee has done something about it. He and board President David Chiu proposed a ballot measure to replace the payroll tax with a levy on the gross receipts of businesses throughout San Francisco. From now on, Lee proposes, San Francisco’s business taxes will truly be assessed based on the size of the business, and not the number of employees hired.

This is the very definition of common sense. The measure would not significantly increase the tax burden on local businesses — it would merely redistribute the tax burden in a manner that more accurately reflects a company’s size.

Under an unrelated but simultaneous increase in business registration fees, some taxes will rise. Specifically, the measure would raise business registration fees by $28.5 million a year, to be used for the construction of low-income housing and other city services. Lee and Chiu proposed an annual increase of $13 million, while Supervisor John Avalos introduced a competing measure that would have raised the fees by
$40 million. By splitting the difference between the two proposals, the mayor managed to get a majority of the board to endorse the proposal.

If San Francisco voters approve this measure in November, these reasonable reforms will stop labor-intensive companies from fleeing San Francisco and siphoning off our greatest economic asset — our richly talented population. And The City’s tax burden will be more equitably distributed.

The mayor has advanced a sensible solution to a nagging problem. Let’s tip our hat to that, and urge him to display more of these same impulses in dealing with the other challenges that he and The City face.

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