Supervisor's Report

Death of a sales tax

November puts us squarely one year out from the ballot-mageddon we can all anticipate in 2018. You are no doubt already being courted, whether by polls or marketing teases testing the waters for various measures.

Last November, voters waded into the morass of an overwhelming number of ballot measures. Despite a big tent coalition of legislators (including progressive supervisors), the mayor, big business, labor, and transit advocates, transit revenue was not something that survived the down-ballot voting. Though more than 67 percent of voters agreed with Proposition J that the city should dedicate $50 million for homeless solutions and $100 million for transportation infrastructure and operations annually for 24 years, more than 65 percent strongly disagreed the funding should come from an increase to the sales tax. In other words, while voters generally agree on the need for these public investments, they don’t agree with the source of funding. (Incidentally, I was one of only three supervisors to oppose the sales tax.)

For many, there is a persistent tension around the ever-increasing city spending budget — now topping $10 billion — and growing frustration over the lack of city responsiveness to basic tasks such as street cleaning and traffic enforcement. Not the stuff of glamorous headlines, but a big deal for residents who just want relief from endless construction impacts and filthy streets.

There are literally entire departments that many San Franciscans struggle to see as critical necessities — or even understand their basic functions. How about the Office of Innovation? How does it differ from the Office of Economic and Workforce Development or the Office of Small Business? What about the Department of the Environment? With an annual budget of more than $18 million, you might wonder what their essential function is outside of championing fewer garbage cans (while rate-payers are asked to pay more to recycle)?

There is also a long-simmering frustration over the escalating cost of living and the widening income gap. The rich get richer, the poor get poorer, and the middle-class just move to the suburbs.

In 2014, San Francisco restructured its business tax via the ballot and began to phase out our payroll tax to a gross receipts model. In the interim, certain business sectors have enjoyed a tax holiday, while small businesses have been hit hard by everything from higher registration fees to the Amazon Effect and soaring commercial rents. The city controller has released a three-year update on how our gross receipts model is performing, and the big winners are clearly the tech industry and hotels, with small businesses still struggling to strike a balance. In other words, there is a feeling that everyone should share the pain for public investments, but the wealthiest corporations are not pulling their weight — which means everyday San Franciscans are picking up the slack.


Even though California state sales tax excludes certain types of groceries, it is still not enough to make it a progressive source of revenue. Excise and sales taxes by their very nature are regressive. Sales taxes inevitably take a larger share of income from low- and middle-income families than from wealthy households because sales taxes are levied at a flat rate — and spending as a percentage of earned income falls as income rises. Unlike an income tax, which generally applies to most income, the sales tax applies only to spent income and exempts saved income. High earners have the luxury of being able to save a much larger share of their incomes than everyone else, and so the sales tax burden is disproportionately carried by the folks anxiously tracking every bill and every penny.

Even the sales tax generated by wealth(ier) consumerism leaves key contributors off the hook. Corporations that are making billions upon billions in revenue off “facilitating” services in San Francisco pay little to nothing of our local business tax, the major stream of funding into the city’s general fund. Most of those services have escaped any kind of meaningful regulation, thanks to the state and city’s laissez-faire approach, further complicating reasonable efforts to mitigate their substantial impacts, including the creation of an entire class of worker that does not enjoy basic labor protections or benefits. The gig economy worker juggling two to three jobs simultaneously has become the standard even for college-educated professionals.

The San Francisco County Transportation Authority’s sales tax growth was weaker than expected for the 2016–17 fiscal year, indicating a slowdown in our local economy and impacts by online retailers. The controller’s modeling shows a 1.5 percent decrease in sales tax revenue from previous years, and it’s no wonder. Even in a boom economy (remember that $10 billion city budget?), brick-and-mortar businesses are struggling to survive and some residents are pinching pennies. Restaurants close just as fast as they open, commercial properties sit vacant, fuel prices have increased and car purchases have decreased.

It’s not a Doomsday scenario, but rather a cautionary tale before we plunge into ballot-mageddon again. San Franciscans know who and what is causing many of the headaches they deal with everyday, from traffic to a lack of affordable housing. San Francisco voters have been very generous and show they believe in public investment, but they want to make sure they’re not footing the bill while corporate big winners are still off on a tax holiday.

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