San Francisco’s Proposition D, the June ballot measure proposing a gross receipts tax hike on businesses based on their chief executive officers’ pay, would prompt job losses and economic damage, according to a May 14 report from the city’s chief economist.
The economist, Ted Egan, noted that Proposition M was approved in 2024 in an attempt to reduce the incentive for employers to move jobs out of San Francisco and reduce the city’s reliance on tax revenue from a small number of large companies. It did so, in part, by reducing the city’s “Overpaid Executives Tax,” which is a tax on gross receipts.
“Proposition D would reverse this aspect of the reform effort,” Egan wrote. “It represents a policy choice to raise business taxes in a period when there is substantial evidence that businesses are reducing their presence in San Francisco, relative to other locations. San Francisco’s economy cannot credibly be described as being in a downward spiral at the moment. But raising taxes on a shrinking tax base – and thus encouraging further relocation out of the city – does raise that risk. If the City deferred major business tax policy changes until its economy and finances are stabilized, the long-term risk to the economy would be mitigated.”
The measure would cause a $206 million reduction in the city’s $268 billion gross domestic product and would cause 944 residents to lose their jobs, Egan estimated.
Proposition D would redefine and raise the rates of the tax. A competing measure, Proposition C, also would raise the rates, but by a much lower level, and would raise the small-business exemption for the gross receipts tax.
Under the original “Overpaid Executives Tax” approved in 2022, the ratio of the compensation of the highest-paid managerial employee to the median compensation of employees in San Francisco was used to calculate the tax rate. Under Proposition D, the median compensation of all employees, regardless of location, would be used to calculate the ratio.
“Since San Francisco wages are approximately 40 percent higher than U.S. average wages, on average, the average ratio of companies will rise,” Egan noted. “This implies that more companies will pay the tax than currently do. Mathematically, a 40 percent reduction in the median wage would lead to a 67 percent increase in the ratio.”
“The concern here is that people can move five miles down the road and save tens of millions of dollars of taxes,” Chris Wright, senior vice president of Advance SF, a business advocacy organization, told the San Francisco Business Times.