Bubbles, rising rents, and the politicians who fuel them

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After neither Mayor Ed Lee nor Sup. Jane Kim were willing to return my calls to discuss the implications of their economic development policies that favor big commercial landlords and tech companies – which I wrote about in this week's cover story – it was ironic to listen to their rhetorical concerns over local small businesses being hit with rising rents this week.

After all, rising commercial rents are a direct result of their Twitter/mid-Market payroll tax exclusion and other pro-landlord giveaways, just as City Economist Ted Egan told them a year ago when they were adopting it. Yet during the mayoral question time at Tuesday's Board of Supervisors meeting, Kim sang the praises of small businesses, rued the fact that “we are seeing more and more of these small businesses being forced out by the rising cost of rent,” and asked Lee what can be done.

In his answer, Lee spoke around the issue, using the chance to plug economic development programs that could actually exacerbate the problem, and offering vague platitudes. “Neighborhood begins to flourish when we make sure that the individual businesses grow along with them,” he said.

Now, this is a complex problem, to be sure. But that's exactly why the simplistic solutions that these and other city officials are pursuing – and unwilling to defend against reasonable criticisms – are so maddening. I would urge them to read my long article and the dozens of comments that people have made so far, and to engage in more open and honest dialogue about how to solve these tricky issues. My sources made some very good and interesting points, more than I could work into even that long article, so here's a bit more of what they had to say:

Why does economist Peter Donohue think city officials are unwilling to engage in more complex discussions of economic development and its impacts on city government: “These people don't give a shit about public equity and finances.”

Some just have a simplistic view that all economic growth is good and will help the city, he said, calling it “a glorified version of trickle down economics.” And many fiscal conservatives and other boosters of business tax cuts, he said, are actively hostile to the public sector and want it to shrink.

Donohue is dismissive of Lee's relentless boosterism on behalf of the wealthy interests who sponsored his election campaign, saying “he carries their water, that's just what he does.” But he's disappointed that even on the Board of Supervisors, “there doesn't seem to be much of a desire at the board level to ask these questions.”

He said that many public business subsidies can take 50 to 75 years for the city to recoup its investments, leaving the city stuck with rising budget deficits until then. Donohue said politicians don't ask these questions for a few reasons. He said that many are lawyers who simply don't have a good understanding of business or economics. And because most will only serve in city office for four to eight years, they don't have an incentive to consider the long-term implications to the city of their decisions.

“To have a 21st Century city, you have a 21st Century way to finance it,” Donohue said, arguing that the city instead operates on 19th Century funding models, simply accepting the crumbs of capitalism through low business taxes and no means of tapping the actual wealth that is created in the city. “Those forms of wealth aren't being touched.”

Donohue said the Tenderloin and mid-Market areas are the way they are not because of neglect or market forces, but as a matter of public policy. That's where the city decided to house its poorest residents under contracts with SRO hotels in the area and by allowing property owners to keep buildings vacant and blighted (which Egan recommended addressing through a tax on landlords that keep properties vacant, which Kim said she'd sponsor a year ago but never did).

“Certain parts of town are left to go fallow, or to even be destroyed,” Donohue said, so that investors can buy up the cheap properties and work with selected politicians to increase the value of those investments.

“It's really about remaking the city and transforming who lives in San Francisco,” said Chris Daly, Kim's predecessor on the Board of Supervisors and the current political director of SEIU Local 1021.

In the latest Harper's Magazine cover story, writer Barry Lynn praises markets and their democraticizing impact, calling them one of the basic foundations of the American political and economic systems. But he said modern American capitalism undermines basic market principles, which assume buyers and sellers are roughly equal in number and power.

“And so our new masters administer us in America today. They use their great nation-spanning and world-spanning corporations to isolate us as individuals, and then to pit us against our neighbors. They capture and hide away the information that until recently spilled from our open market,” he wrote.

“Even the most conservative economists don't like the idea of subsidizing businesses because they think it's a distortion of the market,” Donohue said.

Marc Salomon, a computer programmer and progressive activist, notes that the city has far more jobs than people. Yet rather than focus on attracting jobs to fit the skills of local residents, he said the city's housing and economic development policies are geared to attracting outsiders, thus driving up rents and other costs for the locals.

“That's the job market they're catering to, and the housing they're building for. That's their program,” Salomon said. “They're just ruthless 1 percenters who are trying to change the language and change the dynamics.”

Salomon draws the distinction between whether this is a bubble or a boom, and he said there are strong indicators it's the former. Just as the federal repeal of the Glass-Steagall Act banking regulations cleared the way for the housing bubble and subsequent economic collapse, he noted that last year's repeal by the city of taxing stock options – a law that was created less than 10 years ago so the city could benefit from growth in the tech sector – made San Francisco more attractive to speculators seeking short-term profits.

“You know you're in a bubble when they start repealing anti-bubble laws,” he said. “These people are rapacious and voracious.”

Or, more charitably, perhaps we have public officials in San Francisco who are failing to understand just how quickly and dramatically the economic system is changing, how much power the big economic players are accruing, and how that impacts the public sector, small businesses, and low-to-middle-income residents.

“Things are going to be changing very fast,” economist Tapan Munroe said. “The political, legal, economic, and social systems are all having a hard time catching up to the pace of technological change.”

Comments

spending is discretionary while income is not.

Most people prefer choice, and those who wish to save and invest rather than consume and fritter will benefit.

Posted by Guest on Feb. 18, 2012 @ 5:53 pm

A gross receipts tax is a type of sales tax, but it applies to all business activity so it has very low tax rates, much higher compliance since it's close to impossible for businesses to avoid, and is far easier for government to audit and administer. No tax is paid by an individual if earnings are invested/saved rather than consumed.

Posted by Guest on Feb. 18, 2012 @ 9:24 pm

which is why a receipts tax hardly exists anywhere. It's grossly unfair.

Posted by Guest on Feb. 19, 2012 @ 3:57 pm

A receipts tax punishes large-volume, low-value essentials like food and housegold goods, that everyone needs.

It rewards high-value, small-volume luxuries like jewellery and fur coats.

YES to VAT - NO to a receipts tax.

Posted by Guest on Feb. 18, 2012 @ 5:56 pm

VAT is a tax on a fairly narrow base of specified consumption transactions, with many exemptions and exceptions. A VAT doesn't apply to the financial industry, rental income, insurance income, or other "non-consumption" actvities that might be as high as 40% of the total economy. Thus, a VAT might have to be 2 or 3 times higher than a gross recipts tax to raise the same amount of revenue. A higher tax makes tax evasion that much more enticing and lucrative.

To exclude the financial industries from any sort of new tax - precisely the industries that have done such damage to the US "real economy" - is a major goal of the finanical, real estate and related industries and they greatly appreciate your support to exclude them from any new taxes like a gross receipts tax.

The fur coat vs. food purchases is a good example of how simple sounding anecdotes can lead to terrible public policy decisions. Aside from the fact that if luxury goods consumption bothers people, a separate tax on luxury goods can be easily established similar to what the US tried in the late 1980's. But it failed miserably and was quickly abolished. And how are the lines drawn for luxury goods? A 100% fur coat gets the higher tax, but not leather coats with tiny fur cuffs? Is the rule that the higher tax applies if any fur is included in the product, or only when it reaches 10% of total product composition? A Mercedes gets a higher tax, but not a Ford Focus, or do only the "high-end" Mercedes get the higher luxury tax?

More importantly, the very wealthy avoid consumption taxes like VAT on expensive purchases anyway because they often make expensive purchases while travelling. VAT doesn't apply to export purchases. A $50,000 diamond or $30,000 fur coat bought in Antwerp, Tel Aviv or Bangkok would never be taxed in the US because they would never be declared, unless you're suggesting the US also hire a million new revenue agents to search the luggage of all travelers to look for untaxed purchases. Compliance and administration are significant aspects of any tax system.

The very wealthy and even highly paid executives in most companies travel extensively. Many have regular business trips to Hong Kong, Paris, London and other luxury good markets, often purchasing thousands of dollars of clothes, jewerly, gold and other expensive items that never get charged VAT because they are "exported" back to the US, but are never reported to the US.

The food example is the silliest of all. Over the holidays I attended a dinner party where the hosts spent over $300 per person for 12 people to gorge on a day-long food extravaganga (fresh lobster, caviar, $150 dollar a liter Greek olive oil; 50 year old balsamic vinegar ($225 for 3 oz.) from a small Italian producer; $300 a pound toro tuna straight from Japan; truffles, $500 a pound Delafee Swiss chocolate, and on and on. Even the salt course was over $200. None of the $3-4,000 of food was taxed because food is "exempt," whereas it would have been taxed under a gross receipts system.

Using poor people to justify tax exclusions that mostly benefit the higher income classes is exactly the type of spin doctoring the government and wealthy classes are known for, and they thank you for your support.

And this idea that people don't pay tax when they buy food because it's "exempt" from sales tax or a VAT is ridiculous anyway. A farmer pays all sorts of taxes on production, including property taxes, payroll taxes, fuel taxes, and income taxes, all of which are passed along to the manufacturer who buys the farm output. The manufacturer also pays loads of taxes when processing the food into some product, which are included in the final price. The transportation company pays various taxes when the product is shipped from the manufacuturer to the distributor, also recovered from the purchaser. And the distributor pays various taxes when selling the product to the retailer. Finally the retailer pays various taxes (again property taxes, payroll taxes, use taxes, corporate income taxes, etc.) that also get passed along to the food consumer. Every product or service purchased already has loads of tax embedded in the purchase price, including food and other "exempt" items.

Besides, the motivation for using a broad based tax like gross receipts is precisely so that regressive payroll and sales taxes can be eliminated, especially on lower and middle income taxpayers. Any marginal tax increase on food from a low GR tax, if any, is more than offset by lower taxes elsewhere. And since the government would be using a much cleaner, easier to audit, easier to administer, and a much harder tax to evade, the government compliance costs drop dramatically.

Finally, VAT tax evasion is a growing issue, with fairly easy methods to get REFUNDS of VAT that were never paid in the frirst place! See page 13 on the linked report, and the discussion later in the report for similar tax compliance issues if the US adopted a VAT and the 50 states used different tax rates.

http://www.imf.org/external/pubs/ft/wp/2007/wp0731.pdf

There is no question wealthy individuals and the largest world-wide businesses will fight to avoid a simple, clean and highly effective tax system like gross receipts. None of us should be surprised they use facile arguments like, "What about the poor?," or "It will hurt the job creators," or "It's too different." They'll repeat these minor disadvantages with any new tax to prevent effective tax changes, but most of us will know the real reason for their distaste - the wealthy and big businesses don't like paying taxes even more than working people don't like paying taxes.

Posted by Guest on Feb. 18, 2012 @ 9:15 pm

works in Oakland.

Posted by Guest on Feb. 19, 2012 @ 9:56 am

Just look at the mess they are in.

Posted by Guest on Feb. 19, 2012 @ 3:58 pm

The state of WA has used a gross receipts tax forever. (They call it a Business and Occupation Tax (B&O), but it's a GR tax since it's based on gross business sales.)

The tax works great for WA and for the residents who don't have to deal with a WA income tax (although there is a fairly high regressive sales tax in WA). The tax also seems to work well for some of the biggest corporations in the world, including Microsoft, Amazon and Costco that all headquartered in WA. (Not an endorsement of any of these companies, but only examples to show that multi-billion dollar corporations seem to do just fime with a GR tax, along with the tens of thousands of other small and medium sized businesses that operate in WA.) Amazon especially operates on tiny margins of 1-2%, and they seem to handle a GR tax just fine.

http://en.wikipedia.org/wiki/Business_and_occupation_tax

http://dor.wa.gov/docs/pubs/excisetax/bo_pubutil_littertax/bofs.pdf

"Washington’s business and occupation (B&O) tax is the second largest tax source for the state. In Fiscal Year, 2008, B&O tax collections totaled over $2.8 billion, representing over 16 percent of the taxes deposited into the state general fund. Many Washington cities also tax businesses on their gross income."

"Washington’s B&O tax is calculated on gross income. There are no deductions for labor, materials, or other costs of doing business."

New Mexico has used a GR tax for many years.
http://www.tax.newmexico.gov/All-Taxes/Pages/Gross-Receipts-Tax.aspx

From Wikipedia:
"New Mexico imposes a Gross Receipts Tax (GRT) on many transactions, which many even include some governmental receipts. This resembles a sales tax but unlike the sales taxes in many states it applies to services as well as tangible goods. **Normally, the provider or seller passes the tax on to the purchaser, however legal incidence and burden apply to the business, as an excise tax.** GRT is imposed by the state and there may an additional locality component to produce a total tax rate. As of July 1, 2008 the combined tax rate ranged from 5.125% to 8.4375%." (**- emphasis added since it's a key point.)

Other states and cities also use gross receipts taxes - including Los Angeles, although different states and cities may call it by a different names (eg, Ohio's CAT (Commercial Activity Tax)

A GR tax is possibly one of fastest growing types of taxes since it is easy to calculate; relatively easy to administer and audit; applies to businesses fairly evenly (different tax rates are often used for "high-margin" vs. "low-margin" vs. "service" businesses), and the very large tax base (gross sales) means tax rates can be relatively low, which reduces tax evasion incentives.

http://en.wikipedia.org/wiki/Gross_receipts_tax

Posted by Guest on Feb. 19, 2012 @ 8:00 pm

fundamentally unfair as any kind of tax on receipts.

But I would support a VAT in return for lower income tax rates.

Posted by Guest on Feb. 19, 2012 @ 4:00 pm

You're making a distinction without a difference.

In many places a VAT is as high as 20% of the selling price, although it is buried in the final retail price unbeknowst to most purchasers. When a sale is made, the 20% VAT is recovered and remitted to the applicable government agency.

A gross receipts tax is often much lower (.5% to 8%). It too is collected ONLY when a sale is made and then remitted to the government agency.

You're basically arguing against yourself when you say one tax is okay (VAT) and the other tax is bad (GR) since they basically operate in the same manner.

The main difference - and it's a huge difference - is that a GR tax applies to all business activity rather than a narrow range of consumer consumption, so ALL purchasers of ALL business activity contribute a little bit of tax. Since the tax base is so much broader, the tax rate can be much, much lower so it has far fewer distortive affects and the incentives for tax evasion are reduced.

Every tax has pros and cons - to argue that one tax is "best" or another "worst" is pointless - but some taxes are clearly better than others in terms of fairness, ease of adminstration and audit, and the dispersion of their fiscal effect among all economic activities.

One critique economists have against the GR tax is its potential "pyramiding effect" (tax upon tax). But this issue is easily solved by allowing credits for any GR tax paid by business suppliers passed along to other businesses. (As a former business auditor, this is one of my favorite twists to a GR tax.) This credit system also has the nifty advantage from an auditor's perspective too, which I'm sure is likely another reason why many Chamber of Commerce types and landlords might be most against this type of tax.

As economist Peter Donohue states so well (although not sure if he's a fan of GR taxes on business income, including rents, since a rent tax might seem counter-intuitive when businesses and tenants are facing high rent spikes), “To have a 21st Century city, you [need to] have a 21st Century way to finance it”.

For those of us who subscribe to the theory that business managers and owners, landlords, higher paid professional workers and government workers are essentially the top 1/3 of society's winners, it answers the question of why we're using a 19th Century tax system in a 21st Century economy. When you've got a pretty good thing going already for the favored economic groups, why mess around with it.

Posted by Guest on Feb. 19, 2012 @ 8:42 pm

most obvious reasons - it's regressive, it's unfair and it drives business to other jurisdictions.

A national VAT makes far more sense than a local GR tax, and would get wide support if it meant that income tax rates could be reduced.

That should be the real thrust here. A VAT has political support - a GR tax has zero support.

Posted by Guest on Feb. 19, 2012 @ 9:34 pm

gross receipts is a tax on commercial activity- income tax is personal income- no reason to trade off except at lower income levels-

Posted by Guest on Feb. 20, 2012 @ 10:41 am

SF is working on it now. I am one of many residents who would support it along w commercial rents receipts with a soft cap-

Posted by Guest on Feb. 20, 2012 @ 10:37 am

good links - 75% for cap gains on RE is only one I would fight - too high

Posted by Guest on Feb. 19, 2012 @ 9:44 am

Besides, it is illegal for SF to impose it's own capital gains or income tax. While property tax increases are severely restricted by Prop 13.

That's why the focus must be on spending cuts - because tax increases are both legally difficult and politically impossible. The voters won't support them.

Posted by Guest on Feb. 19, 2012 @ 9:36 pm
Posted by Guest on Feb. 19, 2012 @ 11:55 pm

as they know that is political suicide in an election year.

Posted by Guest on Feb. 20, 2012 @ 8:54 am

a national VAT + 2% on services for the states

Posted by Guest on Feb. 18, 2012 @ 7:17 pm

Folks, Look at so called campaign donations (i call em bribes) to understand who these politicians work for and whos interest they represent.

Ther is nothing "progressive" about SF politics its still about the highest bidder for the politician's vote.

so sing along folks,

one, two, three,

How much is that politician in the window, Barf, Barf!!

Posted by sf T party on Feb. 19, 2012 @ 12:05 pm

I found this recent BCG report (Sept 2011), a company I'm fairly sure mostly provides business advice at $500-$1,500 per hour to the largest corporations and biggest governments the world over. The report mentions a modest wealth tax on the very rich as one way to help pay down government debt, an excellent idea that I wish would get more traction in the US.

One always has to question the motives for writing such a report and releasing it to the general public (business promotion?; hoped for government policy change by some of the firm's bigger clients?, etc.), but it's an excellent compilation of some of the severe - really severe - issues facing governments, businesses, homeowners, and residents the world over.

http://www.bcg.at/documents/file87307.pdf

The combined household, business and government debt numbers are staggering. If we think Greece, Spain and Portugal have deep problems, check out Ireland's sitiuation on the p. 7 graph. If any of you have relatives still living there (and I think I have a few) consider calling them immediately and ask them to consider some country to live ASAP since "basket case" is too mild a term for Ireland's dire economic situation.

The graph on p 5 is helpful too, although why a debt ratio of 180% of GDP is "sustainable" I have no idea. Zero debt is the only way to operate if political leaders care about future generations, but we all know that bondholders and landlords founded most European countries, including the US, and those two powerful groups like governments to issue mountains of debt since it directly and indirectly increases their wealth.

I found the BCG report linked from a fun exercise on a blog I'd never seen before with a Feb. 16 entry, "What should Greece do?" The exercise is brilliantly written, ("Choose Yor Own Adventure"), with fairly accurate and wry assessments from choosing different policy options, obviously none of which are very palatable to one major player or another. Some of the comments following the exercise are insightful too. I ended up at #30, but many of the other players ended up at the "Argentina solution." This link may have come from a comment on this Bay Guardian blog. If so, thanks to whoever linked to it.

Less fun is knowing that millions of Greeks are undergoing severe economic stress and that many of their same issues will be coming to the US soon enough (lower wages, higher interest rates, forced inflation, higher taxes, a far lower standard of living for tens of millions, etc.).

http://crookedtimber.org/2012/02/16/so-what-would-your-plan-for-greece-b...

Posted by Guest on Feb. 19, 2012 @ 9:36 pm

as it is currently prohibited. Interestingly, States can impose a wealth tax although only Florida does that, calling it an "Intangibles Tax". They have a large number of wealthy retirees so it makes sense for them - I doubt that other States would go for it.

France has a wealth tax - no surprise there huh?

Posted by Guest on Feb. 20, 2012 @ 8:56 am

Much of the world's wealth is based on its annual income stream - ie, "How much income will this asset (stock, bond, real estate) produce every year, and for how many years?" Since income is legally taxable under the US Constitution, by taxing certain income types at a higher rate, we can also indirectly tax wealth.

A person's wealth is merely their current balance sheet. Any change to the B/S (increase or decrease in wealth) is based on the person's annual income statement that summarizes income less expenses (plus any changes to the orignal B/S values). Thus, the B/S (wealth) is often dependent on the annual I/S. So, if we can't impose the tax directly on the B/S wealth, we can get a decent alternative by taxing the annual income streams that flow from the wealth, namely the interest, rents, dividends, some royalties, capital gains, etc.

Using the example of an apartment building (the example also works for stock and bonds), if my downtown 250 unit apartment building is averaging $4,000 per unit per month for an annual gross income of $12 million per year, the current building value (wealth) might be roughly $100+ million if the units are subject to rent control, and $150+ million if not subject to rent control. The building value is merely a simple function of its income stream, all other external factors being equal (ie, business climate, interest rates, potential legislation affecting the asset class, etc.)

If 5 years later either new or exisiting companies are hiring employees at accelerated rates that pay much higher average salaries than current residents, then my average rent may soon be $5,000 per unit. The building value (my wealth) will increase to roughly $120+ million to $200+ million, again depending on its rent control status.

Assuming the feds (or other government branch) couldn't tax the building's value (ignoring CA's 1% property tax based on purchase price), but could tax the income stream, then it doesn't matter too much if we tax the wealth value or the income stream.

Let's say we need an emergency 2% tax on the very wealthy (those with > $10 million of assets) to help pay the costs of government (or my favorites, to pay down debt and to reduce regressive payroll and sales taxes on lower income working people). A 2% wealth tax on my $200 million apartment building would be a $4 million annual tax. We can get roughly the same tax amount with a 25% tax on the gross rents (250 apts x $5,000 monthly rent), which is a legal tax at either the federal or state level.

At the local level, a perfectly legal (if approved by voters) gross receipts tax can also acheive a similar result, although it might make sense to start with a 3% GR tax on rents (exempting small landlords who receive less than $50K per year) to prove to everyone that the earth will not implode and business operations wil not plumment if wealthy people have to start paying a little bit more tax. We know the wealthy, their paid advsiors, and their beneficiaries will scream often and loud that the economy will disintegrate if there is either a direct or indirect tax increase on their wealth, but I'm fairly confident most reasonable people after a little consideration won't necessarily believe their spin.

Posted by Guest on Feb. 20, 2012 @ 12:14 pm

And remind me to get "creative" with it when buying automatic weapons.

sure you can tax income and gains, and we do. The point is that you cannot tax the mere possession of wealth. So yes, when people taking about taxing wealth they always mean taxing the returns no wealth. Or on spending that wealth.

But if I am that wealthy I can store my wealth offshore, in vehicles that accrue all income and gains, yielding zero tax liability. Or I can spend my money far beyond the grasp of your petty sales, receipts or VAT taxes.

Your example of a building is better, as real estate cannot be moved from a jurisidiction - every other asset can be moved. But even then, the voters confound you, passing Prop 13 limited your ability to tax RE.

You seem obsessed with tax. Maybe instead you should focus more on creating wealth, rather than confiscating it from those more productive and successful.

Posted by Guest on Feb. 20, 2012 @ 5:10 pm

25% annually is why these things never get traction-try 1.5% + a residential utilities users tax of 1.5% with a passthrough provision

Posted by Guest on Feb. 20, 2012 @ 10:03 pm

whether you have a formal passthru or not. It's effectively a sales tax on rents - inflationary and regressive.

Posted by Guest on Feb. 21, 2012 @ 12:45 pm

it will have to be done- index it

Posted by Guest on Feb. 21, 2012 @ 2:36 pm

and Prop 13 is irrelevant to a GRT on rents, which would be anti-tenant.

Posted by Guest on Feb. 21, 2012 @ 4:18 pm

to suggest tenants pay anything toward the extensive amenities and services they receive in this town.

Posted by Guest on Feb. 21, 2012 @ 9:32 pm

no homeowner is going to vote for one if there is no passthru provision. And so if only a few tenants vote against it, it's going down.

So yeah, sorry tenants, but you have to pay too. And of course tenants consume far more city services than homeowners.

Posted by Greg on Feb. 23, 2012 @ 12:44 pm

There's nothing like a good soundbite to frame a debate. I'm fairly certain "Guest" knows that rent taxes are neither "regressive" nor "inflationary," but s/he just can't resist the urge to have a little fun on the Guardian blog.

The "regressive" part is a nice touch. Even if the soundbite seems plausible about "inflationary" impacts - which it isn't - a rent tax collects more from the most prosperous businesses and/or residential tenants who pay the highest rents and whose buildings would therefore collect the highest amount of tax. A higher tax on higher income people and wealthier businesses is actually a "progressive" ideal, but who really cares about truthfulness when we're just tossing around silly soundbites for fun.

Maybe Guest missed that day in class or just forgot, but a landlord already charges as much rent as the community can afford regardless of her costs. This is the way the world has worked for at least the past few thousand years of recorded history, and this reality will not change overnight. Landlords are profit maximizers, like all other economic players in a market economy. Costs are mostly irrelevant in a market economy except when there is fierce competition for customers/tenants by business suppliers/landlords, which is actually fairly rare. Most economic classes involve studying various "imperfect markets" since that is where the "real world" takes place.

Because a landlord is already charging as much rent as the community can afford - regardless of the landlord's current costs -if a new cost (rent tax) is imposed, the rent will stay the same no matter how much the spin doctors try to scare us. After all, IF the landlord could get a higher rent now, they would be charging it without a new tax prompting the increase.

Assuming the going rate for a 2-bedroom apt. or an office space is $5,000 month, and using a 20% tax as an extreme example, most definitely the landlord would WANT to increase the rent to $6,250 to recover the rent tax ($1,250) and to continue collecting the original $5,000. But IF the landlord COULD charge $6,250 a month for the commercial space or the apartment, then the landlord WOULD already be charging that amount BEFORE the rent tax. It's the commmuntity that determines how much it will pay for rent, not the landlord. If a landlord charges more than what the community will pay, the space remains empty. If the landlord charges less than what the community will pay, the tenant gets a (rare) bargain.

Since our elementary and high schools have done a poor job teaching us one of the most important subjects of all - economic survival in a rigged game - the wealthy and powerful economic classes (which includes the largest landlords, stockholders, financial institutions and bondholders) continue to maintain their crippling grip on the 2/3 of us who make up the lower and middle income groups. The numerous and largely unaccountable government agencies help keep the basic economic system in place, apparently in exchange for government workers receiving relative job security, robust medical plans, and often much more generous pensions than the rest of us.

It would be nice if the local tax debate that will be raging over the next 8 months was prompted because politicians realized that a robust economy is much more sustainable if regressive payroll and sales taxes are eliminated and replaced by hefty rent taxes and modest gross receipts taxes on all other business activity (exempting small business). But alas, the real reason for the debate is because local government sees a growing abyss between future tax revenues and future pension and healthcare obligations and is scrambling to find revenue wherever it can. It will be one of the main topics of discussion in local, state and countless other government agencies over the next 20 years, assuming they can keep the current system propped up that long.

Posted by Guest on Feb. 21, 2012 @ 6:13 pm

1) LL's do not charge "as much as the market will bear" under rent control. Which is why parcel tax increases are passed thru to tenants. A GRt on rents would be too, by the same argument.

Oh, and most SF LL's aren't huge corporations or REIT's. this isn't NYC. Other than ParkMerced, it's mostly mom'n'pop enterprises who have persistantly showed a willlingess to go out of the business via OMI/Ellis/TIC/Condo.

So either by passthru or reduced supply, a GRT on rents will have the same effect that every tax has on a business - customers pay more.

Regressive and inflationary.

You want to reduce the deficit? Here's an idea. Cut spending and the insanely expensive pension deals that city workers have. Voters wont support any tax hikes if the pensions mess isnt fixed.

Posted by Guest on Feb. 21, 2012 @ 6:25 pm

and the Sangiacomos are a major residential players as are the Chinatown landlords- it is true the cost of gross receipts will affect LL profits and business owners- but what about the cost of the schools imploding? I agree with the need for salary and benefit reforms- I am looking forward to fighting for the museum guards and jail nurses again - as we balance 7 Billion! dollars for little SF.

Posted by Guest on Feb. 21, 2012 @ 7:54 pm

US city, in that most LL's are little guys.

If you want to improve the schools, then we need to tackle the biggest deficit problem - the pensions timebomb.

Posted by Guest on Feb. 22, 2012 @ 2:42 am

You've conflated lots of different issues together.

1) I haven't heard any politician or the local papers talking about a tax on residential rents, only commercial rents. The city wants new revenue and if a residential rents tax was proposed, one can easily imagine a barrage of campaign mail from SPUR, Chamber of Commerce, BOMA and the large and small landlord groups bombarding tenants with your soundbites: "Your rents will go up! "It's a regressive tax!" In fact, it wouldn't surprise me if many people who identify as progressive reflexively feel the same as you about a residential rents tax.

The example with both a commercial space and an apartment was used since most readers have experience with renting an apartment. The outcome is the same for both types of property, however. There is no change to the maximum rent a landlord always charges, regardless of costs.

2) Even if a residential tax was being considered for rent-control units, pass-throughs are not much of an issue since the tax could easily be phased in whenever existing tenant(s) moved out. It would be part of the new market rent and wouldn't affect existing tenancies. Or the tax could be phased in over 5 years and the landlord would use the "operating and maintenance" provisions to try to pass it on to the tenant, which wouldn't happen since the tax would be a fairly small cost increase, especially with a 3-5 year phase-in.

3) The TIC/condo conversions will happen regardless. There are hundreds of property buyers trolling for 2-4 unit buildings for just that reason. When "mom and pop" sell, there's a good chance one of these converters will buy the building and try to work their magic. A new rents tax doesn't affect this much, much larger speculation issue where the payoff can mean 6-7 figures to the speculator, but it would be a good taking point for them: "Government taxes caused me to evict the tenants." Right.

4) The are lots of "mom and pop" owners. Any tax would exempt small owners so it's a non-issue. We can reasonably expect, however, that the highest proportion of the value of rental apartments are held by large partnerships, LLCs and corporations. We can't know for sure what the approximate breakdown is between small vs. millionaire landlords since I couldn't find any ownership data on the recorder/assessor's website, or any other useful public research tool. However, even though small landlords would likely be exempted from any future legislation, we know there will be dozens of campaign mailers stating the opposite: "This tax will destroy small landlords."

You're mentioned government spending many times. Yes, how the government spends its revenue is important. But spending evades the issue being discussed. Let's not pretend that who pays for the taxes is any less relevant. Indeed, who pays the taxes may be far more relevant to the well-being of society. As might be expected, the federal, state and local governments typically use the most regressive, job-killing taxes possible: payroll taxes and sales taxes for starters, while giving billions of dollars of job-killing tax write-offs and exemptions to the landlord class and to big businesses who can pay far less tax by shipping jobs and investment overseas.

Posted by Guest on Feb. 21, 2012 @ 10:29 pm

The purpose of a tax system is to raise revenue in the boradest and most equitable of ways. It shouldn't discriminate or punish in the way you suggest.

Since I've never heard any SF politician advocate a GRT - presumably because he would like to be re-elected - the question is moot. And I realise you are just talking it up here trying to gain some support or traction.

But the voters aren't stupid. They know that income tax - when it was first introduced - was only for the wealthy. Look at it now.

So new taxes are hated far more than even tax increases. Because we all know that new taxes start with the rich but eventually hit the middle-class. Why? Because there aren't enough rich people to bail us out, and the "one percent" already pay 37% of all taxes.

I know you mean well but we can't borrow, tax and spend our way out of trouble. We have a spending epidemic and eventually the city will have to get itself out of several businesses that it is currently in.

Posted by Guest on Feb. 22, 2012 @ 2:47 am

it would probably not make a lot of difference for the wealthy, but it is not enough-education at all levels is virtually free in France- and if you need medical help- you get it-also social housing and family assistance is strong- they have economic challenges as do all nations- but general health, education levels are higher-

Posted by Guest on Feb. 20, 2012 @ 10:51 am

miraculously vanish to all the neighboring States who would be rubbing their hands and licking their lips with glee.

Rich people aren't dumb, else they would not have gotten rich in the first place. And rich people are much more mobile.

Posted by Guest on Feb. 22, 2012 @ 2:49 am

incorporate in Delaware, North Dakota, Nevada, wherever, NYC has a city income tax- notice the dearth of wealthy residents.

Posted by Guest on Feb. 25, 2012 @ 10:23 pm

wow this went far afield. not saying that global macroeconomics isn't important and all but it really doesn't have much immediate bearing on our situation here in sf.

inso far as the sloppy wet kiss on "small business" lets keep in mind this litte bit of myth smashing by the indispensable doug henwood,

"The small business myth is probably the most durable and pervasive of all. It holds appeal across the political spectrum, from corporate lobbyists trying to sell tax breaks to postmodern New Agers trying to sell their vision of decentralization and local self-reliance. We are constantly told that universal health care, or a higher minimum wage, or tighter environmental regulations will drive the small business job machine off the rails. But whatever the virtues of intimate scale, like friendliness, informality, the possibility of cooperative or democratic governance, from a purely economic point of view, small isn't beautiful. Small firms pay less than large ones, are less likely to offer health, pension, or child care benefits, and are often more dangerous to workers. With few exceptions, they're not all that innovative technologically. And now it emerges that in manufacturing at least they are not the job machines they are reflexively praised for being.

now to the business at hand.

as noted above, the rhetorical focus on "small business" as the oppositional "good" to the big business "bad" is just silly since it completely obscures the immediate issues that ought to matter like job quality, wages, and career ladders to name but a few. the question of political economy is certainly an important one. however it appears that the answer among too many people is akin to a suggestion that SF can remain progressive only if we keep neighborhoods so undesirable for people with means that only the people who will *want* to live among the working poor and the substantial underclass are lowly paid boho do gooders from the land of non-profitopia.

now i recognize this is a strawman in many respects, that seems to be the practical consequence of some of the talk here. i've got more thoughts on this but i keep getting pulled away from the computer by my kids so i'll have to come back to this...

Posted by Alex on Feb. 20, 2012 @ 11:07 am

to sell all kinds of agendas-takes work to sort out what will help us fix the roads, MUNI, schools, is it more money? more responsible families, businesses, government? a less expensive healthcare system? taxing Google, FB, EBay? VISA?
banks?

Posted by Guest on Feb. 20, 2012 @ 12:27 pm

Small business need big business. Big business needs small business. The goverment needs taxpayers. The goverement should be working on getting more taxpayers, more businesses. I work 40 plus hour works, i pay taxes, I don't anything for free, well maybe a nice park, decent health care system that i can pay into. Good transit that can get me to wear I want to go. If Twitter or Sales Force will help get us here, then i am for business.

Posted by garrett on Feb. 21, 2012 @ 2:50 pm

You haven't posted anything new since last Friday.

Posted by Guest on Feb. 21, 2012 @ 5:25 pm

to keep rents low in the mid market area and let it continiue on it's path of decay.
Do you know why rents are rising? It's because more businesses want to relocate there.
One thing the BG definitely hates: success!

Posted by Guest on Feb. 22, 2012 @ 3:26 am

if the general economic climate for average people continues to deteriorate.

Posted by Guest on Feb. 25, 2012 @ 10:40 pm