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by hawkoy 2046 days ago
From: https://calmatters.org/california-divide/2020/11/san-francis...

> The tax will levy an extra 0.1% to 0.6% on gross receipts made in San Francisco for companies whose highest paid executive makes 100 times or more its median worker’s salary. The amount levied will increase in 0.1% brackets proportionally to the pay ratio. A company whose highest paid employee earns 200 times more than its median San Francisco worker will get a extra 0.2% charge on its gross receipts. For companies whose CEO makes 300 more, the charge jumps to 0.3% and son on. The tax caps at 0.6%, and only companies with gross receipts over $1.17 million will be targeted.

> Under the measure, gross receipts and CEO compensation will include money made from stock options, bonuses, tax refunds, and property, a caveat seen by many as a way to target the tech sector where CEOs are often compensated in non-salaried bonuses. Tech is expected to account for 17% of the tax revenues, according to an estimate by the city’s chief economist, while retail and financial firms are expected to account for 23% of the revenues each.

> The CEO tax is expected to generate between $60 million to $140 million per year.

Doesn't seem that big in comparison to what SF annual budget is.

From (because the article doesn't give exact figures on transfer taxes): https://sfcontroller.org/sites/default/files/Documents/Econo... ?

> Proposed legislation would raise the Transfer Tax rate on properties in the city that sell for more than $10 million. For properties selling for between $10 million and $25 million, the rate would rise from 2.75% to 5.5%. For properties selling for over $25 million, the rate would rise from 3% to 6%.

6 comments

I'd also be surprised if it brings in anywhere near the quoted amount since the SF supervisors have proven themselves incapable of considering second order effects such as companies contracting out their low-pay roles or simply leaving SF.
Pretty hard to claim this when Visa decided to massively expand their Global HQ in San Francisco after Prop C passed.

The pandemic has thrown things in a wrench, but prior to the pandemic, San Francisco businesses were constrained only by commercial real estate. There was literally no space left to put any new businesses.

We've been collecting Prop C revenues since March 2019, and they are exactly as forecast.

A gross receipt tax is relatively difficult to evade. A company generally cannot avoid the SF tax without also foregoing the associated SF revenue.
> SF supervisors have proven themselves incapable of considering second order effects

Correct. SF and its politics cannot be saved, just let them slowly eat themselves.

this is a tax on high pay roles, so I don't understand your concern. Also I hope and pray that it would cause companies to move, that is essentially working towards the same goal.
if it was profitable, it would have happened already.
Two economists walk down a road and they see a twenty dollar bill lying on the side-walk. One of them asks “is that a twenty dollar bill?” Then the other one answers “It can’t be, because someone would have picked it up already,” and they keep walking.
Additionally, tech companies use outsource their low paid labor. I don't see how they'll pay this tax.
>Doesn't seem that big in comparison to what SF annual budget is.

There are no singled-out pockets that you can tap into and make up SF annual budget. It's all about cumulating a lot fo long-tail small pockets + 1-2 large pockets.

sounds like a bunch of full-time roles are about to get converted to contractor positions.
The bottom of the percentile graph will be outsourced to save in taxes for the top percentiles.
Agreed, this is problematic if the executive is compensated primarily in stock options.
Why do you think it is problematic? According to my reading of OP, the measures includes stock options in calculating comp.
I tried to look up the actual bill, but it doesn't provide any information on how stock options are valued [0]

I am curious how you would determine what the fair value of a stock option is when it is granted. Assume the option's strike price is for the current stock price. Theoretically, that stock option has a current value of "0" (assuming that it is non-transferrable so we don't have to worry about market price)

That stock option is expected to increase in value if the stock price increases (which then aligns the CEO's salary with shareholder value). So in five years, those stock options might be worth millions of dollars. But would you then say the CEO got paid millions of dollars five years ago? But the stock options when they were granted were 0 - they increased in value when they were the property of the CEO. If the CEO bought artwork 5 years ago and the value increased 10x in 5 years, would you also add that to his taxable income?

I am sure there are ways to value these options. But I can't find the details in this bill. Do you know how it might work?

0: https://sfelections.sfgov.org/sites/default/files/Documents/...

I have no idea how far fetched this is, but there are clearly ways to price options given current share price, the stock price, expiry, etc. Black-Scholes comes to mind, but I am not an expert at this and don't know how reasonable of a valuation you could get this way. Just pointing out that there exists a mathematical framework for option valuation, which is presumably what Wall Street uses as the basis for pricing call/puts on the open market.
It's hard to calculate this accurately. Look at all the news articles greatly exaggerating Elon's stock compensation plan at Tesla.

Keep in mind they also have to calculate this for certain employees.

Seems like the solution is directly compensate your CEOs very little and outsource executive services to a third party company that aggregates CEO compensation as a "contracted entity". This company will mostly be paying CEOs, so its median employee salary will be relatively high.
No board of directors anywhere is going to allow this.
Also depending on how this is structured, disregarded entities still consolidate to the individual so the measure could be flipped to be measured at the (trust ignored) individual level and it would still work.