Replace payroll tax with gross receipts tax

Prop F repeals the city’s payroll tax, and replaces the lost revenue with increasing rates on its current gross receipts tax. It also reduces business registration fees and gross receipts taxes for small businesses. Finally, Prop F contains elements pertaining to prior ballot measures, which a court decision has made irrelevant.

A report from the Controller’s office, which considers Covid-19, found that Prop F would have modest revenue effects over the next couple years, followed by steady revenue increases of about $100 million per year beginning in 2024.

While it’s temperamentally targeted toward tech companies, the retail trade sector would be the most disproportionately impacted, paying 23 percent of the tax while making up 7 percent of current employment.

Experts agree that gross receipts taxes are extremely inefficient and distortionary. Taxing each level of production, called tax pyramiding, encourages vertical integration. Ignoring expenses like payroll and inputs discourages growth and investment. Basing tax rates on industry attracts corruption, with huge payoffs for favorable classification.

Prop F barely raises any new revenue before the 2022 election, and after that it grows the General Fund by about 1.5 percent. Rejecting this flawed proposal now creates an opportunity for leaders to bring the voters something better thought through in the future, without cementing a terrible fiscal precedent.