Taxes

Bay Area Politicians Strangling the Region’s Key Industry

San Francisco lawmakers want to put the squeeze on tech companies.

|

In most of the country, a region's "big" industry—think automotive companies in Michigan's heyday, the oil business in Houston and entertainment in Los Angeles—is treated with deference by locals. Sometimes that attitude morphs into support for subsidies or even indifference to pollution or other problems. But it's rare to see city leaders purposefully stifle companies that produce a large share of good-paying jobs and tax revenues.

Enter San Francisco, where officials often don't play by the normal economic rules. No metropolitan area is more closely identified with the burgeoning high-tech economy than the Bay Area. Yet in June, three of the city's 11 supervisors proposed a 1.5-percent payroll tax that would be imposed specifically on technology companies that earn $1 million in gross receipts.

This "tech tax" was designed to raise money to battle the city's homeless problem. But the economic rationale was epitomized in a statement by the bill's author, Supervisor Eric Mar: "The rapid tech boom in our city and region threatens our city's ability to thrive and prosper," he said, in a Guardian report. "Five years after the boom, it's time for San Francisco to ask the tech companies to pay their fair share."

Earlier this month, the measure that would have placed the tax proposal on a citywide ballot was defeated in committee. Enough San Francisco legislators apparently understand an idea that goes back to Aesop's day: Strangling a golden goose is a quick route to poverty. But this won't be the last San Franciscans will hear about such a tax increase, nor is it the only example of increasing hostility by city officials and local activists to the tech industry.

"Corporate buses that Google and other tech companies (use) to ferry their workers from the city to Silicon Valley, 30 or 40 miles to the south, are being targeted by an increasingly assertive guerrilla campaign of disruption," according to a 2014 Guardian article. Protesters have blocked buses. A window was busted on one of them. As the article put it, protesters complain that "the tech sector has pushed up housing prices in the city and made it all but unaffordable for anyone without a six-figure salary." The Google buses make it easier for tech workers to live in beautiful San Francisco, rather than in the more mundane San Jose area.

Likewise, San Francisco supervisors recently passed a law that legalizes short-term rentals in the city, but imposes restrictions on them. Property owners can only rent out their entire house 90 days a year. It must be their primary residency. They must pay hotel taxes. They must follow the city's rent-control laws. The most controversial element: Hosting sites, such as Airbnb and HomeAway, would be responsible for making sure hosts—i.e., the people who post their homes for rent on company sites—are registered with the city. Airbnb filed a lawsuit arguing the law violates the First Amendment and Communications Decency Act. The latter is a 1996 federal law that protects websites from being held accountable for what individuals post on them.

Advocates for the short-term rental law use a similar argument as those who defend the "tech tax" proposal. They blame these rentals for depleting the city's housing stock and driving up the cost of apartments. "It is ultimately about corporate responsibility," according to Supervisor David Campos, quoted in the San Francisco Chronicle. "About an industry that has made and continues to make tens of millions of dollars in this line of work taking responsibility for the negative impact that they are having on the housing stock."

Once again, many San Francisco officials see thriving tech companies as a problem. They blame their success for driving up housings costs. Apparently, the best way to drive down housing costs is to drive businesses—and residents—out of the city. It's the kind of zero-sum rationale that's fashionable in San Francisco. Yes, demand drives up costs if—and it's a big if—supply remains the same. Thanks to strict building restrictions and growth controls throughout the Bay Area, the supply of housing is largely capped.

Within the city of San Francisco, rent control is a staunch disincentive for property owners to rent out their apartments or to invest in the construction of new ones. In essence, a tenant can stay for many years in apartments at below-market rates. Rent increases are capped. Evictions are difficult, thanks to the city's notoriously pro-tenant rent laws. Over the years, the city has only built a tiny portion of the units needed to keep up with the population growth. The permit process for building anything is costly and cumbersome. Even some state legislators from the Bay Area recognize the need to build more supply, but most proposals are modest or focus on building more subsidized units.

"Over the long run, setting an artificially low price on a product (in this case, apartments) guarantees that the supply of that product will diminish," explained Peter Byrne in a prescient 2000 San Francisco Weekly article. "Among other things, when people are unable to move—due to excessively high rents—they tend to stay in one place, that is, to hoard their apartments, effectively removing these units from the market."

Property owners become afraid to rent out their apartments. It's one thing to rent out an apartment for market-based rents. You can always raise the rent after the lease is up or give tenants notice and move into the building. But in San Francisco, such reasonable behaviors are restricted. As a result, "thousands of units are simply being kept off the market," according to a 2014 report by KALW. "Some estimate up to 10,000 of these units exist. Many sit unrented because tenants are proving too risky an investment for some property owners." Tenants can get free attorneys and even tie up legitimate evictions (for nonpayment) in a costly legal process.

By contrast, in the booming city of Tokyo, home prices have been steady for 20 years, according to a new article by Alex Tabarrok for the Foundation for Economic Education. That's because the city "has a laissez-faire approach to land use." In 2014, it issued more than 142,000 building permits—far more than the entire number of permits in all of California that year. Yes, even a densely populated city with virtually no vacant land can build its way out of its housing crunch. Keeping supply up also makes it easier to deal with the homeless issue.

The proposed "tech tax" is counterproductive for any number of reasons. "It's solving a housing crisis by hurting an economy," said Mark Pincus, founder of Zynga. As Forbes' Travis Brown reported, "The same innovative individuals who would be paying this 1.5 percent payroll tax already pay 13.3 percent on their earned income (the highest rate in the nation)." San Francisco is a great city, but there are other great cities competing with it for these jobs.

The tax is dead for now, but the same illogical reasoning—and fundamental problem—is alive and well. Why, yes, it might be possible to at least marginally reduce housing prices by chasing jobs and taxpayers away. But is that a road the city wants to travel? Isn't it far better to try something sensible and create new incentives to create rental properties?

This column first appeared in Calwatchdog.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

72 responses to “Bay Area Politicians Strangling the Region’s Key Industry

  1. And if you have the temerity to not rent out your unit, there might be a tax on that, too.

    http://sanfrancisco.cbslocal.c…..it-vacant/

    1. All the left coast cities are going that way. They’re squeezing the available housing, then wondering why the housing is being squeezed. Yes, they are exactly that stupid.

      1. That’s why they demand repeal of the Hyde Amendment. It will all make sense if you have less people. Subsidized abortion = less people.

        No, wait – California already subsidizes abortion.

        1. Just think what a “paradise on Earth” San Francisco will be, once there are no longer any people there…

    2. They’re “hoarding” condos, according to the article.

      Propaganda much ?

    3. I basically profit close to $10k-$15k every month doing an online job. For those of you who are prepared to do easy at homee jobs for 2h-5h each day at your house and earn valuable paycheck while doing it… Then this work opportunity is. Go To Web…. http://www.14earnpath.com

  2. The same innovative individuals who would be paying this 1.5 percent payroll tax already pay 13.3 percent on their earned income (the highest rate in the nation)

    Holy shit.

    1. Well, that’s the top state income tax. Most of such individuals’ income comes from capital gains.

      Then again, the top capital gains tax in California is 13.3 percent too.

      At least the sales tax in San Francisco is only 8.75 percent.

      1. At least the sales tax in San Francisco is only 8.75 percent.

        *gag*

  3. The rapid tech boom in our city and region threatens our city’s ability to thrive and prosper

    I had to read that a few times to let the stupid churn, but my god, I’m speechless.

    1. Me too. I hardly know where to begin.

      1. You could start by sending all the members of the City Council to a Microeconomics class but something tells me they don’t teach ‘real’ economics at any university in that area.

        1. They do — Janis Kea at West Valley College. Took her her economics class in 2004 when I was right out of college, and it was real economics

    2. There’s people with money. Authoritarians want to take the money. Don’t get hung up on trying to parse the rationalizing bullshit that comes out of their mouths, it’s not particularly relevant.

      1. Give this man a cookie. The purpose of power is power. The purpose of torture is torture. The purpose of plunder is plunder — any programs it gets spent on is just a way to buy public or special interest approbation..

        1. ^^^This

    3. That proves my point that the wage gap is created by, and indeed a feature of, a growing economy. Not everyone rides the wave. It only makes sense that those with more skills (education, desire to work) have their income grow at a larger rate than those who don’t.

      Now these people complain that their neighbors have too much money.

      1. That proves my point that the wage gap is created by, and indeed a feature of, a growing economy.

        It’s not your point, it’s a well known fact in economics: generally, economic growth increases inequality, but it also increases wealth for all.

    4. Proving once again that California and San Francisco in particular are ground zero for stupid.

      This guy probably thinks that high paid government jobs are the key to prosperity. Just like in Greece.

    5. In a way it is rather magnificent in its own way, you have to marvel at the ability of someone who could actually manage to think that and still be a functioning human being. I wonder if they have someone to clothe and feed them and keep the drool from getting in the keyboard…

  4. “The rapid tech boom in our city and region threatens our city’s ability to thrive and prosper,”

    That ought to tell you what the Bay area’s “key industry” really is. A boom in good jobs is anethema to that key industry – if you’ve got your own money and can take care of yourself, what do you need government for? It’s the same way these “Keynesians” push for increased government spending when the economy’s bad on the grounds that people need more government and push for more government spending when the economy’s good on the grounds that people can afford more government. Less government is never the answer.

    1. These people aren’t Keynesians since, if they were, they would actually follow through and reduce spending after a recession.

      Keynes himself would be staggered by what these people do. It’s reckless in the extreme and completely unsustainable over any medium to long period of time. I imagine these politicians know that, but instead of reducing spending they look for the next golden goose to strangle in order to pay for their misguided policies.

      I think they call this ‘New Keynesian Economics’ at this point, which I have honestly not read a lot about since I lost any and all respect for these people when they can’t even follow the advice of the guy that invented their economic opinions.

      1. “I imagine these politicians know that,”

        No. They do not know it.

        These people literally believe that government creates jobs and that the solution to overspending is more spending. They are the flat earthers of economics.

        1. “The flat earthers of economics.” Beautiful, mind if I steal it?

    2. No one follows Keynes. It’s just an excuse to spend more.

  5. The more I see of San Fran’s local politics the more I incline to the thought that they should ahve encouraged His Majesty Norton I to beget heirs and actually govern.

  6. “Enough San Francisco legislators apparently understand an idea that goes back to Aesop’s day: Strangling a golden goose is a quick route to poverty.”

    Barely enough, and more importantly, not many of the VOTERS understand that.

    1. But you’ll have a nice, tasty dinner.

  7. We’re cool with homeless guys taking a dump on the sidewalk, but if you’re associated with companies that bring billions of dollars into the local economy, you’re a black-hearted monster that must be driven beyond our fair city’s borders.

    /SF Legislator

  8. It was quite enlightening to live in the bay area this summer. I’ve never had so many people apologize to me for their community. However, the instant they got to talking, politics came up and you quickly learned that they didn’t understand the root causes of the problems their community has. I’m glad so many of them “considered moving to Texas” but decided it was too hot and republican-y.

    1. I’m glad so many of them “considered moving to Texas” but decided it was too hot and republican-y.

      Presumably to Austin, which is absolutely the former and absolutely not the latter. It was already careening toward the SF model of governance, and all those folks from SF moving in will only accelerate the trend.

      1. You’d be surprised how many are ending up in Dallas. I see California plates everywhere now. It’s too bad because they’re fucking up the traffic patterns, and their politics are dumb as shit.

        1. This was a topic of discussion yesterday, about progs f’ing up anyplace to move to; they are drawin to opportunity and affordable houseing, but bring along their notions of “[misguided] humanitarianism” and pro government solutions, and then taxes go up, property becomes more expensive, and like a plague of locusts they pretty much fuck up everything.

        2. They want to do for Dallas what they did for California!

        3. ^^All true

          /fellow Dallas resident

    2. I live in the bay area and it’s maddening. Everyone blames high cost of living / housing on “those tech workers”, etc, but ask them about zoning policy, housing supply, and gov’t regulations and they get this stupid look on their face.

      See it’s all about the korporatiuns….

      I mean jesus fucking christ. Without tech companies this area would be the next detroit; it’s the only thing keeping the one-party democrat rule afloat.

  9. I found the rising fascism there intolerable 20 years ago and got the hell out. It sounds even worse now.

  10. It’s solving a housing crisis by hurting an economy

    Perhaps they looked at Detroit and said, “We want to be more like that.” Look how cheap property is there!

  11. “Economic suicide contemplate, fended of at this time”

    Damned fools don’t get that tech is the easiest to move. Unplug, move, replug in….done.

  12. San Francisco doesn’t have a “tech boom”, it has a boom of “tech-related media” and “Internet selling” (mostly snake oil). Real techies aren’t interested in living in rent-controlled, decrepit little apartments surrounded by drug addicts, homeless, and San Francisco old money, while having to dodge throngs of tourists (many of them naked). Real techies prefer quiet places, big garages, and no hassles so that they can focus on actual technology.

    As for San Francisco’s “homeless problem”, it’s the result of San Francisco massively subsidizing homelessness. San Francisco spends $241 million per year on city services for the homeless, plus tons more on making the city attractive for economically marginal populations at risk of becoming homeless. Of course, San Francisco is going to have lots of homeless: it’s creating them.

    1. there’s a reason i live in campbell and work in Oakland. I only go to SF when I have too. My coworkers love the city but the only good thing about it is the ballpark where the Giants play

      1. That’s a hell of a commute.

  13. San Francisco is a great city
    [Citation Needed]

    So what’s to stop the companies being taxed from moving to Oakland?

    1. That’s where most of them are headed, then you get protesters in Oakland bitching about all the white people moving in…. I mean “gentrification”

      1. Edit – Ironically, most of the protesters are rich white yuppies

    2. So what’s to stop the companies being taxed from moving to Oakland?

      Oakland.

  14. If you want to know who is driving up real estate prices in San Francisco, just have a look at this handy database:

    http://transparentcalifornia.c…..francisco/

    If you look on Glassdoor, you’ll find that a Google director makes less than $300000. Senior software engineers at Google make around $180000. The numbers for Apple and Facebook are similar.

    (And before you object that tech salaries and public sector salaries include and exclude different kinds of incomes and benefits, they do, but I’d argue that that about balances out. That is, people in the tech sector receive bonuses and incentive plans, but people in the public sector receive additional benefits not accounted for in the database.)

    That is, senior software engineers at Google or Facebook or Apple make considerably less than firefighters, paramedics, nurse practitioners, administrators, or police officers in San Francisco.

    1. Listen, some people need to be more equal than other!
      How else can a equal society function?!

    2. No wonder people in government seem to have a distorted sense of reality. Guys running small divisions of a company (say in the 25 to 50 million range) are making half what a fire department lieutenant makes ?!

    3. To be fair i am wondering if this compensation for the 2011 thru 2015? I would hope anyway otherwise wow!!

      1. Those are annual salaries. Note how it includes the “year” under the “Job TItle” column. Alternatively, just select a single year from the drop-down box.

        Note that salaries have increased massively for many city employees over the last four years. Just search for one of the names you see and you get their salary by year.

        1. And I will bet their pensions will be based on their last salaries, which will really help the pension plan deficits they’re facing. Which will obviously require raising taxes on the “greedy tech companies.”

  15. It’s as if the city gov took the Iron Laws as a challenge: How many of these can we prove through our actions?

  16. They do have very nice weather.

    Is there nobody else here think it’s a great tax?

    I live on the east coast. Maybe those industries will move this side instead. Hence I think this localized tax is wonderful (or at least not hurtful … to me)!

    1. Not in July, they don’t. You’ll freeze your balls off in July.

  17. “The rapid tech boom in our city and region threatens our city’s ability to thrive and prosper,”

  18. “The rapid tech boom in our city and region threatens our city’s ability to thrive and prosper,”

  19. “The rapid tech boom in our city and region threatens our city’s ability to thrive and prosper,”

    1. This is the land of Leland Yee. The famous Chinatown gun runner/politician/gun control writing legislator.

      C’mon people. If you don’t drink the water, it will never make sense.

  20. I posted that comment three times and I still can’t believe somebody actually said such a thing.

  21. There’s nothing so great about living in San Francisco. High tech should just get out now. Just get completely out before they build at wall to keep you IN.

  22. A higher tax for high-tech workers “polled well” according to a SF supervisor who went from Nay to Yah.

    It’s all about the polls.

  23. RE: Bay Area Politicians Strangling the Region’s Key Industry

    Kudos are to be given to the Bay Area politicians for their valiant attempts to smother capitalist enterprises that are polluting their community. San Francisco is the homes for the progressive penthouse set only. Placing any industry would only create jobs, make more people enjoy the Bay Area’s many natural wonders and worst of all allow the little people into their gated communities. Such actions must be prevented at all cost if the land of Nancy (we must past the bill before we read it [or words to that affect]) Pelosi and her wonderful socialist ilk. San Francisco has done a commendable job in throwing out the middle class and replacing it with progressive millionaires and billionaires. Putting the ugly and putrid middle class workers would undo all that has been done for the rich and powerful. Worse than that, allowing the little people back into SF would send a message the political machine that dominates SF politics would tolerate the existence and participation of anyone who would come off the street. Such vulgar thoughts, indeed, acts would grossly undermine all what the penthouse progressive have worked so hard for so many decades to accomplish, ie create a community where the rich can mingle among themselves and not have to worry about rubbing elbows with those dirty, unenlightened untermenschen. So let us all give praise to the powers that be in SF in keeping out the lowly plebian class.

  24. $89 an hour! Seriously I don’t know why more people haven’t tried this, I work two shifts, 2 hours in the day and 2 in the evening?And i get surly a chek of $1260……0 whats awesome is Im working from home so I get more time with my kids.
    Here is what i did

    ?????? http://YoutubeJobs.Nypost55.com

  25. I deal with a great deal of tenant situations in SF and have seen some unbelievably ridiculous things. Last month there was a guy who finally got evicted from an apartmentioned building I take care of. When the sheriff had him open the door the smell was staggering. He was a garbage hoarder and his apartment was literally waist high in garbage. The cockroaches had a cockroaches problem in there. An exterminator had to be sent to all the surrounding apartments due to his vermin infestation every week for over a year. Thats what it took to get rid of the ass hole. Over 1 year. The kids in the apartment below cheered when they saw him driving off.

  26. my best friend’s mom makes $74 an hour on the computer . She has been without work for five months but last month her payment was $19746 just working on the computer for a few hours. find more information …
    ?????????? http://www.homejobs7.com

  27. Given the homelessness problem is due to a) excessive welfare benefits granted by the city, b) the city’s unsustainable policy as a sanctuary city, inviting unemployable illegal aliens and convicts to live on its streets, and c) unsustainable housing, zoning, and other regulations whose only purpose is to drive up rents by restricting supply of housing to benefit a narrow segment of wealthy property owners, how about a rent tax? Have a 5% tax on gross receipts of rent payments, and let landlords deduct 1% for every 5% of their properties that are dedicated to affordable housing programs. Then impose a 5% dead inventory tax on foreclosed homes that remain unsold for more than six months, unless the banks are employing homeless persons to live-in and caretake the properties. Then the city can go about dismantling its sanctuary city policy and its restrictive housing and zoning regulations.

  28. Is this surprising? I mean, this is where batshit-crazy Pelosi hails from…

  29. I’m making over $9k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do…. Go to tech tab for work detail..

    CLICK THIS LINK?????? http://www.earnmax6.com/

  30. Micah . I can see what your saying… Eddie `s blog is astonishing, on monday I bought a top of the range Lotus Elise after having made $9735 this-past/four weeks and also ten-k last-month . this is definitely the easiest job Ive had . I began this 9-months ago and pretty much straight away started making a nice more than $74 per-hour
    ????????> http://www.homejobs7.com

  31. I’m making over $9k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do…. Go to tech tab for work detail..

    CLICK THIS LINK?????????????> http://www.earnmax6.com/

Please to post comments

Comments are closed.