Proposed SF sales tax hike would reduce consumer spending by $154M, report finds

By sfexaminer – excerpt

A proposed sales tax hike that will go before San Francisco voters in November would reduce the amount of spending in local businesses, but simultaneously raise an equal amount of tax revenue.

That’s according to an economic impact report on the ballot measure from Ted Egan, The City’s economist. The .75 percent sales tax hike would result in a 9.25 percent sales tax rate come April 2017.

San Francisco’s sales tax is currently 8.75 percent, but will decrease to 8.5 percent in October.

Introduced by Mayor Ed Lee with the backing of supervisors Mark Farrell and Scott Wiener, the measure would generate between $150 million and $155 million per year — the same amount it would decrease in consumer spending.

The sales tax hike is already assumed in The City’s proposed budget. Both the sales tax hike measure and the proposed budget will go before the Board of Supervisors on Tuesday for approval.

Higher prices could prompt customers to purchase fewer local products due to the higher tax, which, in turn, would reduce sales by merchants, according to the report. Merchants selling nontaxable products may be affected as well.

As local spending in businesses decreases, The City’s own spending will increase. Private sector jobs will decline, but public sector jobs will rise, according to the report.

“The net impact of the tax increase on employment is positive: a loss of between 430 and 480 private sector jobs, but a gain of approximately 580 jobs in the public sector, for a net increase of 100 to 150 jobs,” the report found.

Mayor Lee’s spokesperson, Deirdre Hussey, said the local sales tax proposal should be viewed as “an extension of the state sales tax that is sunsetting and will be directing money towards San Francisco as opposed to state coffers.” She added, “We have one of the lowest sales tax in the region.”

Scott Hauge, a longtime small business advocate, said he was concerned about the number of taxes being discussed for the November ballot and criticized the process around the sales tax proposal specifically.

“We didn’t feel we were being consulted,” Hauge said. He also noted that when The City recently shifted from a payroll tax to a gross receipts tax, business registration fees increased, totaling some $30 million more annually.

The City intends to use the additional revenue to increase spending on transportation and homeless services. It would take eight votes from supervisors to place the measure on the ballot.

The proposal is not without political controversy.

Supervisor John Avalos has said he wouldn’t support the .75 percent sales tax, after previously backing it, unless Supervisor Mark Farrell removes his controversial tent encampment measure from the November ballot.

Instead, Avalos said he is supporting a separate tax measure: a .50 percent sales tax hike, dedicated toward transportation needs. The .50 percent sales tax hike would have two-thirds of the economic impact of the .75 percent sales tax increase.

During the past decade, San Francisco’s sales tax has fluctuated between 8.5 percent and 9.5 percent. The current rate of 8.75 percent will decrease to 8.5 percent on Oct. 1, with the expiration of Proposition 30’s temporary sales tax increase.

If voters approve the mayor’s sale tax hike, the rate will rise to 9.25 percent on April 1, 2017. The .75 percent sales tax increase would need a majority voter approval to pass(more)

Somehow this does not sound like a good approach. Moving jobs from private to public sounds like a recipe for disaster.

 

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