back to article San Francisco approves 'CEO tax', hopes to extract up to $140m a year from corps with wide exec-staff salary gap

San Francisco will tax businesses slightly more if a chief executive earns orders of magnitude more than their rank-and-file employees after residents voted in favor of the rule. Proposition L [PDF], dubbed “the CEO tax,” passed with 65.2 per cent approval this week. Introduced by Matt Haney, a member of the US city's Board of …

  1. Anonymous Coward
    Anonymous Coward

    String 'em up!

    It's pinata time!

    /Sarcasm...???

    1. The Man Who Fell To Earth Silver badge

      Re: String 'em up!

      The city's ability to tax is related to revenue generated within it's jurisdiction. So if this is painful enough it simply encourages moving offices out of the city down to Silicon Valley.

      1. Anonymous Coward
        Anonymous Coward

        @The Man who Fell to Earth ... Re: String 'em up!

        You can move the company out of SFO but going to Silly-cone [sic] Valley isn't going to be a good option.

        Where are you going to go? Not enough real estate is available. And then you run into a problem of SFO doing it.. then surrounding cities / counties will do it.

        In Cleveland, OH, the county implemented RITA to tax those who lived outside of Cleveland but worked in and around Cleveland. You can expect that to happen.

        Also the tax is more about 'social justice' where the CEO or other senior execs make way more money than the average employee.

        There are also other ways around this... by reducing salary and then increasing alternative compensation which may work for some.

        But to your point. Watch them move out of California altogether.

        When your employee can't afford to own a home and must commute over an hour... its a sign that you need to move away from the 'valley.

        I had the option of moving to SFO back in the mid 90's.

        I'm glad I didn't. My Midwestern values couldn't handle all that smugness. (If you don't know what I mean, South Park did an episode on it... )

        1. Jim Mitchell Silver badge

          Re: @The Man who Fell to Earth ... String 'em up!

          "There are also other ways around this... by reducing salary and then increasing alternative compensation which may work for some."

          The article covers this:

          "The fine-print for the changes ensures wages, stock options, bonuses, and tax refunds are all considered part of the CEO's total compensation."

          1. Robert Grant Silver badge

            Re: @The Man who Fell to Earth ... String 'em up!

            Taxing tax refunds. Fonzie sailing over that shark.

    2. bombastic bob Silver badge
      Unhappy

      Re: String 'em up!

      more than likely they'll move OUT of San Francisco within the year.

      I hear other staes like Florida and Texas have corporate friendliness, and MUCH lower cost of living.

      Think about it: if you're NOT being taxed at that 'progressive' (read: punitive) rate and your cost of living is HALF of what it was, you could literally AFFORD to be paid 1/3 or even 1/4 of what you WERE being paid, and still live JUST as well as you did before (possibly BETTER). Just convert somve of that wage pay to stock options or 401k or something ELSE that's not immediately taxable, and move to one of THOSE places, and I bet you'll see corporate bottom lines improve AND the CEOs be just as "wealthy" in their lifestyle.

      Or you can pay all of your wages in tax, demand a compensating raise, and watch employees get laid off, just for the "privilege" of a San Francisco corporate address...

  2. Anonymous Coward
    Anonymous Coward

    Does the coporation need to be HQ'd in San Francisco for this to apply, or just have offices there?

    While I am not in favor of CEOs earning hundreds of times what their average line employee does, this seems pretty steep to me. Two or three tenths of a percentage of revenues is actually a big deal at most big companies. We'll see if this helps to drive businesses leaving SF.

    1. diodesign (Written by Reg staff) Silver badge

      Re: Does the coporation need to be HQ'd in San Francisco for this to apply, or just have offices there?

      No, it just has to do business within SF.

      The city's business taxes generally apply to any business doing work within the city limits. El Reg's West Coast office is* in SF so we're familiar with the rules.

      C.

      * Offices have been closed since mid-March for the pandemic. But amusing that if you look out the window, opposite us is the Microsoft office on 555 California St.

      1. Anonymous Coward
        Anonymous Coward

        Re: MS across the street

        But amusing that if you look out the window, opposite us is the Microsoft office on 555 California St.

        I presume that lowered your rent considerably?

        :)

        1. diodesign (Written by Reg staff) Silver badge

          "I presume that lowered your rent considerably?"

          More like lowered theirs. Did want to put up a banner on the window saying 'The Reg is watching' or something similar

          C.

      2. Dinanziame Silver badge
        Paris Hilton

        Re: Does the corporation need to be HQ'd in San Francisco for this to apply...

        It's still very unclear to me how does that work. Let's take Google, which probably has a gap of >600. Google has offices in SF, sells ads to businesses operating in SF. What is this tax applied to? Is it a sales tax on services sold by Google to companies in SF? Or on services sold by Google employees in SF to the rest of the world? Is it a net income tax on profits made by Google in SF? Are Google employees working in SF paying more tax on their salaries?

        I do see the article mentions "gross receipts attributable to San Francisco", but as far as I know, this gobbledygook could mean any of the above.

        1. diodesign (Written by Reg staff) Silver badge

          "this gobbledygook "

          Ah, it's not. Gross receipts and work attributable to the city are defined things in SF city tax code, so if in doubt: consult your tax lawyer. We have one in San Francisco who does our taxes for us.

          When Google fills in its taxes for the city -- it has an office on Spear St -- it will declare its gross receipts attributable to the city and the city will tax them on it. This boils down to:

          * Receipts involving property, of multiple kinds, and sales and services in the city

          * Payroll in the city

          If it feels complex, it is. It's tax law. See https://sfgov.org/sfc/san-francisco-gross-receipts-tax for info.

          Edit: I've added a link to more details on GR tax in the article.

          C.

          1. Robert Grant Silver badge

            Re: "this gobbledygook "

            Sounds like the really beneficiaries will be the accountants. Kept in BMWs by unintended consequences for the past 50 years.

          2. Homeboy

            Re: "this gobbledygook "

            "We have one in San Francisco who does our taxes for us"

            Might be interesting to speak to your tax lawyer and see how many different ideas he/she has already thought up for minimising or eliminating possible payments under this new tax without actually changing who is pay what.

            The more complex the tax rules are, the more loopholes they have.

  3. Bitsminer Bronze badge

    The Law of Unintended consequences applies

    Fix the low median by firing a few of the lowest-paid employees.

    And, you're done.

    1. codejunky Silver badge

      Re: The Law of Unintended consequences applies

      @Bitsminer

      Or outsource the lower end jobs, maybe set up a new company of lower pay and take a smaller compensation from that.

      It will be interesting to see the ways used to get around this stupid idea.

    2. Jimmy2Cows Silver badge

      Re: The Law of Unintended consequences applies

      Also it seems like "median salary of their company" should be excluding other exectives and senior management, otherwise the biz just needs to increase exec and senior management pay across the board, just enough to raise the median above the threshold, and the CEO can keep their fat paycheque without paying this tax.

      This will do nothing to help raise pay for minions actually doing the grunt work, and it won't bring much if any extra revenue to SF's coffers. Expect somewhere around zero once the affected companies have figured out their workarounds.

      1. Anonymous Coward
        Anonymous Coward

        Re: The Law of Unintended consequences applies

        That's not how the median works. If you take each employee's compensations and line them up in order of amount, the median is the one in the middle.

        1. Jimmy2Cows Silver badge

          Re: The Law of Unintended consequences applies

          Oops oh yeah, thanks for pointing that out. I was thinking as mean, not median, which is clearly wrong. Never mind, then.

          I still expect the gains to SF from this to approach zero as companies find ingenious workarounds.

          1. Yet Another Anonymous coward Silver badge

            Re: The Law of Unintended consequences applies

            That's the irony, it's probably not going to hit "silicon valley" type companies at all.

            Someone like Google are already going to be outsourcing everything that isn't core - so all the cleaners, security, office admin aren't going to be employees. The median salary if you only have programmers and executives on the payroll isn't going to look that bad.

            Somebody like Apple will ensure that Apple store employees are employed by an Apple Stores subsidiary with low paid execs.

            Amazon's CEO doesn't get a salary at all - he borrows the money to live on against futuresales of AMZ stock

            It will probably end up hitting stores like Trader Joes and fastfood places exclusively

          2. Nifty Silver badge

            Re: The Law of Unintended consequences applies

            And the loopholes used won't even have saving money as the main objective. It'll be seen as a sport.

            1. codejunky Silver badge

              Re: The Law of Unintended consequences applies

              @Nifty

              "And the loopholes used won't even have saving money as the main objective. It'll be seen as a sport."

              I think its more a case of not having it stolen just because you earned it. Allowing the company to put it to good use instead of the government sink-hole. Thats why voluntary contributions to governments tend to not be much and usually unintentionally by dead people.

      2. katrinab Silver badge
        Boffin

        Re: The Law of Unintended consequences applies

        Only if your execs and senior management make up more than half your workforce, which is unlikely.

  4. Anonymous Coward
    Anonymous Coward

    I've only been there twice, but I can say this..

    I hope they put that money to good use, as the companies operating there should feel ashamed of themselves.

    Sure there are lots of rich people, but christ, the poverty and number of homeless are incredible. The only thing missing is the shanty towns (I guess the tent towns are the equivalent).

    1. martinusher Silver badge

      Re: I've only been there twice, but I can say this..

      SF is a bit gross in places but the reason for that is like the reason why people rob banks -- its where the money is. There's lots of cheap places to live in California but they're not the Bay Area; SF has amenities and services that other areas lack so people would rather live on the streets there than try and eke out a living in a different part of the state (or even the country).

      The fundamental paradox is that the more resource to throw at the problem the worse it gets. I'm not advocating the 'let them slackers starve' approach but just recognize that humans are no different from rats -- if you provide a food supply and not too unpleasant living environment they'll multiply (and keep multiplying until the resources run out).

  5. Anonymous Coward
    Anonymous Coward

    Must try harder

    Peanuts, even if they hit the max $140M, that's $158 per person. Citation, I worked for a small NHS Trust 15 years ago and our operating budget was over £240M p.a.

    Now compare that to the trillions swimming around the 'Bay area [pun intended]

    IIRC during the 40s and 50s bosses pay was at maximum about 40x the average workers pay

    1. JK63

      Re: Must try harder

      Correct. It was also a time when the highest nominal tax bracket was 90% or higher. So when you hit the last bracket 90% of that income was taxed. It is not 90% of all income.

      Oddly enough, as the highest nominal tax bracket rate ha gone down, CEO pay has gone up.

  6. Anonymous Coward
    Anonymous Coward

    Interesting

    Not familiar with the US labour environment, but just how many businesses are there where there is a ≥100:1 pay gap between some employees and others?

    Also, does this include things such as bonuses and perks (company transportation, accomodation, etc.)? And how about an arrangement where the CEO is also a shareholder? You could for instance hire your CEO and loan him a number of shares for which he would take dividends until he is fired / leaves the company.

    1. Jimmy2Cows Silver badge

      Re: does this include things such as bonuses and perks

      The article covered at least some of this...

      The fine-print for the changes ensures wages, stock options, bonuses, and tax refunds are all considered part of the CEO's total compensation.

      In the UK perks may be considered as taxable income, depending on what they are and if they meet certain thresholds. Don't know if there's an equivalent in the US.

      1. Mike 16 Silver badge

        Re: does this include things such as bonuses and perks

        No idea what the current situation is (retired, living on pension), but back in the 1960s working for the campus food service, my "food allowance" (daily subsidy for lunch in the cafeteria) was taxable.

        If one is taxing the food of minimum-wage workers, surely the stock options and junkets for execs would get similar treatment, right? (/sarcasm)

        1. katrinab Silver badge

          Re: does this include things such as bonuses and perks

          Stock options are definitely taxable. Not sure what junkets you have in mind, but they probably are taxable.

  7. Imhotep Silver badge

    It's My Toy

    Southwestern Bell used to be headquartered in Saint Louis, Missouri, until a new CEO wasn't allowed to join a particular country club. Then headquarters was moved to Texas.

    Never underestimate how many lives can be affected by an irritated CEO.

    1. Mike 16 Silver badge

      Re: It's My Toy

      Golf is a powerful incentive for many of the powerful. I recall reading some time ago that part of the siting decision for Strategic Air Command bases in the U.S. was the availability of a local high-end golf course.

      The General liked to golf.

  8. Marty McFly Bronze badge
    Holmes

    Disillusioned....

    El Reg quoted Matt Haney, a member of the US city's Board of Supervisors:

    "San Francisco is one of the most desirable cities in the United States for companies to be located in."

    Less than a year ago, Mr. Haney was also quoted by a different news source saying:

    "This is a national embarrassment, it is also [in] many communities a disgusting, public health crisis, no one should be able to walk about and see poop smeared all over the place, no one should live in these conditions. It is not funny.”

    Source: https://www.dailysignal.com/2019/12/26/heres-how-bad-san-franciscos-poop-problem-got-in-2019/

    To sum up... San Francisco has poop smeared all over and it is a desirable place to live, according to the politicians that run the place. Got it.

    1. ecofeco Silver badge

      Re: Disillusioned....

      The same rational was even posted by another commentard here.

      I will never understand that level cognitive dissonance.

  9. SkyFlyer

    Punishing companies and individuals regardless of wealth is not a great way to keep them within your tax base, regardless of the 'altruistic' notion in play. This is always a flawed proposition put out by democrats who then wonder why companies exit to other states.

    1. Snake Silver badge

      Choices

      But then, those "other states" give away billions of public monies in tax benefits to those companies, the companies your type have a problem when they have to pay out of their pockets.

      0.1 to 0.6 percent of gross receipts may be about equal to the fines many of these sleazeball, money-first companies have paid out for playing fast and loose with laws and rules. But that's a "cost of doing business" and dismissed by the stockholders (proof: nobody ever gets voted out or dismissed), but heaven forbid the people ask for some type of tithing to equalize a bit of personal greed.

  10. skeptical i
    Headmaster

    Arizona passed something similar

    Prop 208 would add a surtax to income dollars beyond $250K for individuals, with that money going to K-12 education (adding teachers and in-class staff, increasing teacher pay, and so on). The "pro-business" groups howled that people would run screaming to take their high incomes elsewhere. I use quotes because at least some industry groups had been citing the quality of Arizona's K-12 education as an obstacle to recruiting businesses, and/or for existing businesses to recruit talent from elsewhere. While paying a little more for the 250,001st dollar and up of tax-able (i.e., post- credits, deductions, and other available options) income would not be harsh for /me/, I guess we'll see what others who actually live in that bracket decide to do.

  11. Anonymous Coward
    Anonymous Coward

    Realistically what do you do with that much money anyway?

    We find that even on moderate salaries, money isn't really in short supply. There isn't that much we want to buy, and the usual "big house and car" just feels like an unnecessary waste.

    Maybe they expect us to get into the expensive restaurant, holiday, and fashion shop scams?

  12. Nifty Silver badge

    The tax is for the greater good. The good of the states that companies will relocate to. There was a nice YouTube video on the 100,000 net emigration pa from California with the high living cost, high taxes and low quality of SF and LA life cited as key reasons.

    1. Big_Boomer Silver badge

      Which is just another way of spreading the wealth. Since the whole Bay Area is full to bursting point, they are actively encouraging companies to go somewhere else and this is just one of the ways of doing that.

      Why are so many people obsessed with accumulating so much wealth anyway? What are they going to do with it? Roll around in it like Scrooge McDuck? Once you get beyond a certain point more wealth is irrelevant. I get that nobody wants to give it to the government, local or national, but how else do you expect them to build and maintain the roads that your employees use to drive to work, to operate a sanitation dept, a police force, etc.? A 40:1 ratio is obscene, let alone 100:1 or more.

    2. bombastic bob Silver badge
      Trollface

      The tax is for the greater good POLITICIANS to BUY VOTES with

      Fixed it for ya

      (ok not in the same context but I could not resist)

  13. Anonymous Coward
    Anonymous Coward

    $1.17M

    And $2.8M?

    These aren't exactly round or "go to" numbers. What're the bets that's set to protect a politician's friend?

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