Proponents for San Francisco’s Prop D argue that large companies like Google should contribute more to the city’s tax base. In reality, Prop D won’t really tax the people and companies voters imagine it will.
Lea Suzuki/S.F. Chronicle
Back in 2024, San Francisco moderate and progressive politicians, unions, small businesses and the Chamber of Commerce came together to agree on a seemingly indecent proposal: They would give large employers like Google, and small businesses with under $5 million in sales, a tax break to help stabilize the city’s flailing post-pandemic economy.
That effort culminated in Proposition M, which passed with nearly 70% of the vote in the November election.
Nearly two years later, the compromise seems to be working. Anecdotally, we can see the results in declining office and retail vacancies and more activity downtown. More concretely, the city’s projected budget hole over the next two years has shrunk by $293.8 million, due in part to increased general fund revenues from business growth.
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Yet budget woes remain — and a citizen ballot measure in the June primary sponsored by Service Employees International Union asks San Francisco voters to light the 2024 compromise on fire to bring in more tax money, fast.
Prop D, also known as the Overpaid CEO Act, wouldn’t actually make overpaid CEO’s fork over a cent. Instead, it would rewrite much of Prop M’s reforms by increasing taxes on businesses with at least 1,000 employees globally, $1 billion in sales and a highest-paid executive who earns over 100 times the median salary of their workforce. Implementation would start in 2027 and is estimated to generate between $250 million and $300 million in revenue annually for the city’s general fund.
Proponents argue that large corporations — which just received a tax break at the federal level from the Trump administration — should contribute more locally to help mitigate devastating federal funding cuts that disproportionately impact low-income residents, immigrants and people with disabilities.
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Conceptually, it’s hard to disagree. But, in reality, Prop D won’t really tax the people and companies voters imagine it will.
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Voters have been led to believe this tax would hit some of the region’s largest, richest companies — like Google and Meta — and the billionaires who run them. But executives don’t pay the tax; companies do. And in our endorsement interview with the proponents, Supervisor Bilal Mahmood admitted that Prop D would hit “retail,” not tech, the hardest. That includes grocery stores, pharmacies and national retailers like Macy’s, which the city has been hemorrhaging from locations like Union Square.
A just-released report from the city’s Office of Economic Analysis on Prop D’s economic impact explained that “the tax increase will encourage affected businesses to reduce their tax burden by reducing employment in the city, or by raising prices.” Meaning they will lay off private sector workers and pass through Prop D’s costs to you, the consumer. Low-margin stores could close; the shuttering of the Lucky grocery store north of the Panhandle was recently announced.
The report concluded that “employment gains in the public sector are projected to be more than outweighed by losses across the private sector” and that long-term risk to the economy would be mitigated if the city deferred major business tax policy changes until its economy and finances are stabilized.
Other local organizations studying the measure agree.
A report from the Bay Area Council Economic Institute found that the city’s business tax structure already imposes substantially higher costs on employers than competing U.S. cities and is contributing to the city’s slower economic recovery. “San Francisco’s costs,” said the report, “are increasingly outweighing its advantages.”
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Proponents have tied Prop D to the future viability of the city’s healthcare system, arguing that up to 50,000 people in San Francisco could lose access to their care under Trump’s cuts. Jason Negron-Gonzales, an emergency department nurse at San Francisco General Hospital, told the editorial board that Prop D “is about equitably sharing the burden of this moment.”
But revenue received through the measure doesn’t funnel directly to healthcare; it would go to the city’s general fund. It could just as easily be spent on police overtime or on unsustainable raises for city employees; negotiations over several union contracts will begin, perhaps not coincidentally, the year Prop D’s changes would take effect.
A ballot statement paid for by the measure’s proponents argued that Prop D is “how San Francisco fights back against Trump’s devastating corporate tax breaks — not by eliminating services — but by standing up to corporate interests and protecting what matters most.”
Supervisor Matt Dorsey, who opposes D, countered that “this is a time when there is justifiable anger in what is happening nationwide. There are a lot of things that need to be fixed. And we may be in a better place after the midterms. (But) acting locally in response to things that are happening federally isn’t good politics.”
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The editorial positions of The Chronicle, including election recommendations, represent the consensus of the editorial board, consisting of the publisher, the editorial page editor and staff members of the opinion pages. Its judgments are made independent of the news operation, which covers the news without consideration of our editorial positions.
Companies can too easily move to a nearby city or town to escape taxes while still benefiting from proximity to San Francisco. The hollowing out of downtown in recent years is all the proof we need of the fragility of San Francisco’s economy — and the consequences to everyone when it collapses. No federal dollars waiting to bail us out like during the pandemic if that happens.
Prop D is a tax on businesses disguised as an executive-accountability measure. And changing the rules again so quickly after Prop M makes San Francisco look unstable to employers and investors. It may, in fact, be the final straw that compels those affected businesses to leave the city altogether. We recommend a no vote.
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