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July 7, 2016

San Francisco's "Tech Tax" Is a Revenue Grab, Not a Solution to Homelessness


If higher taxes were the cure for homelessness, you would think California, and especially San Francisco, would have solved its homeless problem years ago.

But no, ironically, one of the highest tax jurisdictions in the country, and one of the supposedly most compassionately governed cities in the nation (at least by progressive political standards), is overrun with homelessness.

It’s not a new problem—anyone who has been to San Francisco in the last couple of decades has seen it. And while the city has taken steps to move the homeless into alternate facilities, it seems more continually arrive to take their place, keeping the homeless population unacceptably high.

What to do? Well, a couple members of San Francisco’s Board of Supervisors have decided that higher taxes, targeted at the city’s highly productive tech community, is the solution to the problem of homelessness.

Yes, you read that right. Those who govern the City of High Taxes by the Bay have decided that even higher taxes, targeted at their most productive residents, will solve the problem of homelessness.

The “tech tax,” as it is being called, would be an additional 1.5 percent payroll tax assessed against tech companies. Because economists generally agree that payroll taxes come out of compensation, the tax is really a tax on tech workers, not on tech companies.

This proposal tells us several things. First, California is still in denial on taxes. Businesses and residents are fleeing the state’s high-tax, high-regulation climate, and yet those who govern continue to pile them on.

Second, San Francisco continues to misdiagnose the causes of its homeless problem. Homelessness is not caused by other people’s wealth, and it’s not caused by low taxes. Every major city, in a variety of climates and economies, has to manage its homeless population, and they all seem to do a better job than San Francisco.

Third, if enacted, the revenue will likely end up going to pay for city employee pensions and other general obligations rather than specific mitigations of the homeless. The tech tax is a revenue grab against an easy target, not a solution to a problem.

Finally, it won’t work. Here’s a prediction: Absent more substantive policy changes, the homeless problem in San Francisco will be roughly the same five years from now, tech tax or no tech tax.

Businesses generally make rational decisions about where to invest and where to locate their enterprises based on empirical data. Governments generally make irrational decisions based on wrong diagnoses and false assumptions. San Francisco’s proposed tech tax is simply the latest example.


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