SAN FRANCISCO (CN) — A novel tax on companies that pay their top executives far more than the rest of their workforce is headed for the November ballot after a unanimous vote by the San Francisco Board of Supervisors on Tuesday.
A charter amendment called the “overpaid executive tax” will target businesses whose CEOs make at least 100 time more than the median workers in San Francisco, adding at minimum a 0.1% surcharge to what they already pay every year in business taxes from their gross receipts. Small businesses are purportedly exempt.
Supervisor Matt Haney, who proposed the measure last year, said the percentage will increase depending on executive pay ratios — meaning the wider the gap, the higher the tax.
“The more inequity between the top executive and the workers, the higher the percentage,” Haney said at the board’s meeting Tuesday. “Companies who are paying their top executive huge salaries can afford to pay this tax.”
The tax rate could be as high as 0.6%, according the latest legislative digest. Proceeds will go into the general fund to be spent on any city purposes.
Haney initially planned to push for the money to go toward mental health programs. On Tuesday, he said it could help address budget shortfalls in the city’s overall health care system and bolster its health care workforce to fight the Covid-19 pandemic.
“The tax will raise up to $140 million annually, allowing the city to hire hundreds of nurses, doctors, first responders and other emergency personnel to help us continue responding to this pandemic,” he said. “This is much needed for us as a city at a time where we are maintaining critical essential services, especially health services, and it will be a targeted tax only on those companies that are continuing to bring in enough money to pay their executives multimillion-dollar salaries at a time when we are experiencing some of the worst economic inequality in our city.”
The tax only applies to companies that gross over $1.17 million annually and pay their executives over $2.8 million a year. Companies that could be affected include Gap, whose CEO makes 3,566 times what the average retail worker earns, as well Visa, Wells Fargo, and Charles Schwab.
The San Francisco Labor Council and local unions support the tax, which is similar to one levied in Portland, Oregon. There, publicly traded companies that pay their CEOs 100 to 250 times more than their median workforce must pay a surcharge of 10%.
But unlike Portland’s tax, which compares global CEOs to the average global worker, the San Francisco tax weighs global CEO compensation against the average San Francisco worker.
The San Francisco Chamber of Commerce, which opposes the measure, said the tax is easily avoidable for business but could be a disaster for employees who can’t work from home.
Jay Cheng, policy director for the Chamber, said in contrast to Portland, companies will be able to avoid the tax by laying off employees and moving locations out of San Francisco. He also said the expected $140 million in annual revenue was based on pre-pandemic assumptions about the city’s economy.
“No way is that going to happen,” Cheng said in a phone interview Tuesday.
“You create this huge economic incentive to just leave the city. Frankly, the people who are going to be hurt by this are entry-level workers. Their businesses are going to say ‘It’s not going to be worth it to do business in San Francisco.’ Especially during the pandemic there’s no reason to have a footprint in San Francisco,” Cheng said, adding, “We don’t have hard data but businesses are talking about this already.”
He said the measure also doesn’t account for lost tax revenue from the Covid-19 pandemic, as tech companies like Facebook and Twitter have shifted to a primarily remote workforce.
“They haven’t accommodated for how many employees will be working from home,” Cheng said. “Facebook told a lot of its employees they can work from home, and they no longer count as San Francisco employees if they work from Burlingame.”