Proposition C, a bill to fight homelessness with a new business tax, slid into San Francisco’s DMs in the middle of the night, politically speaking.
What happened was, in December of last year, San Francisco Mayor Ed Lee died unexpectedly. Over the next seven months, the city lived through two mayors and a nail-biting election that dragged on for a week after voting. The Coalition for Homelessness took advantage of the chaos by gathering enough signatures to qualify a ballot initiative to tax local businesses and use the money to help the 7,500 people sleeping on the city’s streets.
Even then, the idea might have remained an underdog, underfunded ballot initiative—until Marc Benioff got involved. The founder and co-CEO of Salesforce—San Francisco’s largest private employer, main tenant and naming rightsholder of the tallest skyscraper in the city (and the adjacent marquee transportation terminal)—started dropping millions of dollars in support of Prop C. Benioff called out his fellow billionaires, by name, on social media and in public appearances—and they responded defensively. Today you can dimly make out their grappling silhouettes looming, kaiju-like, over the financial-district skyline, where the oligarchs’ proxy fight over San Francisco’s greatest shame now threatens to dispel some of the foundational illusions of the way-new economy.
Tax on Gross Receipts
First, though, you have to get over the weirdness of a billionaire spending millions to tax billionaires. Prop C would tax the gross receipts of businesses with administrative offices in San Francisco and more than $50 million in revenue, at a rate ranging from 0.175 percent to 0.69 percent. Over $1 billion in gross revenue, it taxes payroll instead, at 1.5 percent. That’s confusing (more on the revenue-versus-payroll thing in a moment). Still, most people don’t like to pay taxes, and in this the rich are even more like you and me than you and me. Usually. “There is a kind of hypnosis that goes around, that businesses should not support taxes,” Benioff says. “The reality is, unbridled capitalism is not good for anybody, including all the companies benefitting from it. We want society to be successful. We are connected to it, not apart from it.”
Sounds unobjectionable, right? In fact, no one will go on the record saying “screw homeless people, I don’t want to pay any taxes.” But several of the city’s prominent elected officials—all touting solid liberal credentials—oppose Prop C. They include Mayor London Breed and state Senator Scott Wiener, who has historically supported more resources to attack homelessness and last year sponsored a sweeping bill that would’ve boosted housing construction in the extraordinarily expensive state. “I really struggled with this,” Wiener says. “But this measure was vetted only within the homeless advocacy community and then placed on the ballot. If we’re going to to move forward with a tax increase larger than any we have proposed before, this is not the way to do it.”
Plus, Wiener says, city leadership recognizes the problem. It’s hard to miss. San Francisco has turned into a Brechtian horrorshow where dudes in hoodies wearing tech-company emblazoned backpacks ride shared electric scooters past garbage-strewn tent encampments. It’s got a real dystopian vibe. But the mayor is on it! “They didn’t even give our new mayor an opportunity to set an agenda as the leader of our city,” Wiener says, claiming Breed is seeking “new, aggressive approaches to homelessness.”
To the extent you’re in the market for rationales, that one is buyable. It’s the one that Jack Dorsey, CEO of Twitter and the online payments company Square, made, too. “I want to fix the homelessness problem,” Dorsey tweeted on October 12. “Mayor Breed was elected to fix this. I trust her.”
Benioff, who’d donated several hundred thousand dollars in support of Prop C just a few days earlier, shot back: “Which homeless programs in our city are you supporting? Can you tell me what Twitter and Square & you are in for & at what financial levels?”
“Marc: you’re distracting,” Dorsey replied. “I support the Mayor, and I’m committed to helping her.”
Overall, Benioff has donated $2.5 million to the Yes side, and has been an active campaigner—at WIRED’s 25th-anniversary conference, in a New York Times op-ed, in interviews. He points out that Twitter received a sweetheart tax deal to locate its headquarters downtown, and that in his role as a philanthropist, he knows exactly who donates money and who does not. “These companies made it in San Francisco, on the backs of the people of San Francisco,” he says. “The companies that have given the least are the ones who are opposing this the most.”
So, great. Hot billionaire-on-billionaire action, with city government caught in the middle, and thousands of unhoused people in the middle of the middle. Except then Dorsey shifted the narrative a little, saying in a tweet that he was primarily opposed to the way the tax would be levied. “We are not opposed to a tax increase—we are opposed to a tax increase that results in Square potentially paying twice as much more than Salesforce, which is four times larger than Square,” a Square spokesperson says. “Jack is focused on working with the mayor to help solve this crisis. He’s not running a personal PR campaign.” Stripe and Visa, which also contributed to the No on C campaign, did not return requests for comment.
What Dorsey meant was, taxing companies based on gross revenues without regard to profits and expenses was unfair. And that’s actually more interesting, because it goes to the heart of how Silicon Valley and venture capital-funded technology businesses work. Stripe and Square attract high valuations even as low-margin, high expense businesses because they have investors willing to float them for long periods of time. Those companies were fine with that business model when it made them richer. Now that that model may hurt them, they say the proposed tax is unfair. If you think of the free market as the crucible in which a company must be forged or melt away, then these companies start to look like they’re trying to pull off a Kobayashi Maru—to change the conditions of the test so it’s possible to win.
It’s true, as some finance folks argue, that gross revenue is a terrible way to decide what a company’s societal vig ought to be. “It doesn’t take expenses into account, of course,” says Brett Trueman, an accounting professor at UCLA. “And companies that are just starting out, in some cases they want to boost their revenues because they don’t have a lot of profits, or have negative profits. They want to show they have potential.”
San Francisco has an existing gross revenue tax, itself a compromise with the business community that replaced a payroll tax earlier this decade. Wiener was on the city board of supervisors at the time, and says officials worked hard to craft a tax based roughly on companies’ ability to pay. But he says Prop C would upset that balance by doubling the tax rates.
Dorsey’s complaints on behalf of financial services start-ups, so-called fintech companies, are probably based at least in part on the fact that Square argues its gross revenues aren’t a good metric for its health, because it has to pay service fees to all the pesky credit card companies and banks it works with. Accountants would call those “expenses.”
A Battle in Seattle
The tension is evident elsewhere, in slightly different form. In May, Seattle’s City Council voted unanimously to pass a payroll tax that would have cost the city’s largest employer, Amazon, $22.5 million a year. Amazon pushed back, threatening to stop construction of a new office building. “What we saw happen was a really effective and coordinated campaign to flip the public narrative,” says Katie Wilson, who helped lead Housing for All, a coalition supporting the Seattle tax hike.
Solving homelessness is not a mystery. A proven model called “housing first,” pioneered in Seattle, has shown that challenges like substance abuse or job training are best tackled by giving people have a safe and stable place to live. However, Amazon and other opponents successfully tapped into legitimate frustration with the lack of progress on homelessness to shift political debate away from taxes and funding a solution.
Instead, opponents blamed Seattle city officials for spending their budget poorly, arguing that the government is taxing you and giving it to some shiftless drug addicts who don’t even want to come inside, exploiting economic tensions, much the same way Republicans have exploited the racial divide, Wilson says.
Seattle isn’t alone here. Cupertino—home of Apple—threatened a payroll tax this past spring. By summer, Apple had successfully lobbied to have the tax taken off the table.
And in November, voters in Mountain View—home to Google—will have the option of taxing a tech giant based on head count to fund efforts to help the homeless in an area where the rates of youth and family homelessness are rising. Google, which would have to pay an estimated $3.2 million a year, is not opposing Mountain View’s proposed tax.
In the midst of a national tech backlash, why are the fiercest fights over taxing big tech at the city level? Because there are no other options. “It’s pretty widely accepted that both Google and Amazon are chronic tax avoiders. It’s been well documented that Google has shifted billions of dollars of profits out of developed nations and into tax havens,” says Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy.
That’s particularly true in California, where a 1970s-era law called Proposition 13 strictly limits the property taxes on which local governments typically rely. There might be argument for changing or repealing Prop 13, but after 40 years, it’s sacrosanct. “Those things are less popular with housing-secure homeowners who dominate elections,” says Laura Foote, executive director of YIMBY Action, a nonprofit that advocates for more housing.
Usually, that leaves San Francisco in the uncomfortable position of relying on rich people’s philanthropy to solve its biggest problems. That’s what makes Benioff’s support for Prop C. so noteworthy. Sure, he may be supporting a tax that hurts Salesforce less than Square, but he’s backing a structural solution that would rely on, can you believe it, taxes. And that’s what billionaires are really fighting about: not homelessness, not gross receipts versus profits, but their ability to keep writing their own rules.