“During a normal year, they would have fought it,” said San Francisco supervisor Matt Haney, who introduced the measure.
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San Francisco could become the first U.S. city to tax public and private businesses whose CEOs are “overpaid.”
But less than two weeks before the election, not one penny has been spent so far on campaigns to oppose Measure L, the so-called Overpaid Executive Tax that would impose new fees on businesses whose executives make more than 100 times the median staff pay, data from the Ethics Committee shows. Just one paid argument, at a cost of $203, was submitted against the proposal to the city’s Department of Elections — and not by a business group, but by former San Francisco supervisor and state Sen. Quentin Kopp.
“Usually these things would cause a pretty serious reaction,” said Jay Cheng, public policy director for the San Francisco Chamber of Commerce, which opposes the measure. Cheng notes there are multiple tax measures on the city’s ballot this year, some of which would also affect businesses. “This year we had to prioritize.”
Measure L, introduced by Supervisor Matt Haney and put on the ballot by a unanimous board vote, would come in the form of an additional gross receipts tax and would apply to companies making more than $1.7 million a year.
If approved by a simple majority in November, the city estimates the tax would raise between $60 million and $140 million for the general fund starting in 2022. Haney said some companies likely to be targeted by the tax “are actually making more money than before” the pandemic.
“We need everyone to pay their fair share, that’s true now more than ever: Essential workers have been hit the hardest, the Latino community has been hit incredibly hard,” Haney said. “We have a clear choice,” he added. “We need companies who aren’t fueling our crisis of economic inequality.”
The city’s chief economist estimates that retail, financial services, and tech would account for roughly 75% of the proposed new revenues. Cheng pointed out that private businesses’ tax filings are not public records but said companies like Stride, Square, Gap, Levi’s, Wells Fargo, Bank of America, and Visa could be among those taxed. In addition to salary, the measure includes bonuses, stock options and other forms of compensation in its definition of executive pay.
San Francisco has the widest income gap in California, according to various rankings, and the CEO tax is only the latest effort to make businesses pay for the city’s growing disparity.
In 2019, a so-called IPO tax that would have targeted large tech companies by raising the tax on stock compensation was tabled. The year before, another gross receipts tax on companies making more than $50 million a year was approved by voters to pay for homeless services but has been stuck in litigation since. Supported by Salesforce CEO Marc Benioff, the measure was heavily opposed by Lyft, Square, Stripe, and Visa. But this year, the city’s big tech firms and others have not poured money into defeating Measure L.
“During a normal year, they would have fought it,” said Haney.
This year, the argument is a bit harder to make, Haney said. “They can’t say they’re having a tough time because of the pandemic and argue they should pay their CEOs tens of millions of dollars,” Haney said.
That’s not to say some businesses aren’t theoretically opposed to a CEO tax. In addition to the chamber, the California Taxpayers Association is against it. So is Republican political commentator Richie Greenberg, the measure’s official opponent, who in a statement called it a “bizarre hocus-pocus tax” that would disincentive businesses from hiring entry-level employees.
Under the tax, a company paying its top executive 100 times more than its median employee’s salary would pay an extra 0.1% percent of its gross receipts to the city. If the company’s top executive is paid 200 times more, the tax would jump to 0.2%, and so on up to 0.6 percent. Haney said the largest contributors would pay a maximum of $15-$20 million a year.
San Francisco lawmakers aren’t the first to turn to business to make up for budget deficits or tackle the income gap. Washington State is weighing legislation proposing a surcharge on publicly-traded corporations with a CEO-to-worker pay ratio of 150 to 1 or above. At the federal level, the Tax Excessive CEO Pay Act, introduced last year by Sen. Bernie Sanders, I-Vermont., with Rep. Rashida Tlaib, D-Michigan, and Barbara Lee, D-Oakland, would apply gradual tax increases upward of 5 percent on companies with disproportionately paid CEOs.
Portland in 2018 became the first city to tax publicly-traded companies based on their chief executive’s pay, but San Francisco’s measure goes farther by taxing private and public companies alike. House Speaker Nancy Pelosi, D-San Francisco, endorsed the measure, as has the city’s Democratic Party and the San Francisco Labor Council, among others.
On the opposing side, the Chamber-backed Committee for San Francisco Economic Recovery has been more focused on the city’s Proposition I, a real estate transfer tax targeting properties that sell for $10 million or more. The committee has raised nearly $4.8 million to oppose it.
Kopp, an independent who is opposing nine of the city’s 15 ballot measures this year, submitted the only paid argument against the tax proposal. Kopp said he didn’t understand why the business sector hadn’t poured more resources into defeating the measure and pledged to sue the city, if it passed, on the basis it too closely resembles an income tax, which cities aren’t allowed to collect.
Kopp additionally warned that top executives and companies could take their business elsewhere. “They’ll go to the Silicon Valley.”
This article is part of The California Divide, a collaboration among newsrooms examining income inequity and economic survival in California.