Newsom pushes business tax cuts and fee delays despite evidence they do more harm than good
Sup. John Avalos, who chairs the Board of Supervisors Budget and Finance Committee, expressed more skepticism about the mayor's proposals. "Do tax breaks have the intended effect of stimulating the economy? As we underfund government services, are we getting a net gain or are we getting something taken away? For the very small businesses in my district, it's going to be trickle-down economics. It's very unrelated and unmeasurable in benefit," he told us.
David Noyola, board aide to President David Chiu, said his boss is supporting the biotech tax credit but reserving judgment on the rest. "It's going to be a cost-benefit analysis," Noyola said. "When we're talking about jobs, we're talking about public and private sector jobs, always."
While Egan's economic analysis predicts tax cuts will encourage some economic growth, even he is circumspect about the good it will do, particularly without finding a way to avoid deep cuts in city spending. "The truth of the matter is that our stimulus efforts are small because the city has relatively small power to affect the local economy," Egan told us.
That's the consensus economic opinion. Huge federal spending can help a national economy a little bit, but local economies are just different animals that local governments are largely powerless to really alter, particularly through tax cuts.
"I agree with Egan: city government has little power over the local economy," Mike Potepan, an urban development economist at San Francisco State University, told the Guardian.
Both economists agree that tying tax cuts to job creation or development stimulus is better than general tax cuts, but that neither is good if it means laying off more city workers.
"Research shows that by cutting taxes you have more business activity where studies show it is likely to effect employment," Potepan said. "On the other side, you have to think about revenue. Cities are going to have to balance their budgets, which could mean a cut in services."
Author Greg LeRoy expresses a more critical perspective in his book The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation (1995, Berrett-Koehler), amassing evidence from economic studies and CEO surveys that corporate tax breaks, even those tied to new job creation, have almost no effect on private companies' decisions about where to locate and whether to hire.
"How can companies get away with this? Because the system is rigged. Corporations have it down to a science. They have learned how to chant 'jobs, jobs, jobs' to win huge corporate tax breaks — and still do whatever they wanted all along," LeRoy writes. "That's the Great American Jobs Scam: an intentionally constructed system that enables corporations to exact huge taxpayer subsidies by promising quality jobs — and lets them fail to deliver. The other benefit often promised — higher tax revenues — often proves false as well."
While proposing to forgo collecting millions of dollars in payroll taxes (the Controller's Office is still working on a projected total for the tax cut package), the Mayor's Office also wants to spur development of new housing with a proposal that would delay collection of needed affordable housing money by more than a decade.
After hearing mostly from a large crowd of desperate developers and construction workers during a Jan. 21 hearing on the proposal, the Planning Commission approved the package on a 4-3 vote, with the mayor's appointees in agreement and the board's appointees in dissent. It will be considered by the Board of Supervisors Land Use Committee sometime after Feb. 12.