Council May Compromise on Biz Tax, Sets Sales Tax for June Ballot

Pressured by a proposed ballot measure that would hike the city’s outdated business tax, San Jose’s City Council proposed an alternative ordinance.

The compromise was reached earlier this week, when the council also agreed to ask voters to approve a separate quarter-cent general sales tax. The 15-year sales tax will go on the June ballot and require a simple majority to pass.

City officials say the business tax and sales tax would increase revenue for for city services, though the latter, as a general sales tax, wouldn't be earmarked for a specific purpose.

Scott Myers-Lipton, who teaches sociology at San Jose State University, had been pushing an initiative that would tax large businesses based on revenues. The gross receipts business tax drew opposition from Mayor Sam Liccardo and the San Jose Silicon Valley Chamber of Commerce.

San Jose collects $12.7 million a year from its existing business tax, which tops out at $25,000 for all companies and hasn’t been updated in three decades. On Monday, Liccardo unveiled his own plan, which would up the cap and add a cost-of-living adjustment.

The council approved the mayor’s plan to study a compromise in a 10-1 vote, with Councilman Pierluigi Oliverio opposed.

In a letter to the council, Myers-Lipton called the plan “a very good starting point.”

While the scale of the change he proposes is smaller than the potential scale of the gross receipts measure our campaign is gathering signatures for, I appreciate the value of coming together around a consensus position that will allow all of us to avoid a costly and contentious fight at the ballot,” he wrote in a letter to the council.

Below is a copy of his letter.

Dear Mayor and City Council,

I have reviewed Mayor Liccardo’s memo dated March 7, 2016, which proposes a set of principles to guide the modernization of San Jose’s outdated and regressive business tax.  I believe his proposal is a very good starting point. While the scale of the change he proposes is smaller than the potential scale of the gross receipts measure our campaign is gathering signatures for, I appreciate the value of coming together around a consensus position that will allow all of us to avoid a costly and contentious fight at the ballot. I thank the Mayor for his leadership and support on ensuring our local business community pays their fair share to restore services in San Jose.

I would also like to thank City staff for their report that fairly compares the current business tax and the proposed gross receipts tax measure. I believe their analysis is very balanced and most revealing: it shows the highly regressive and unfair character of San Jose's current business tax, where the smallest businesses pay an average of $120 per employee while the largest businesses pay $13.

This data is invaluable in demonstrating the urgent need to modernize the current business tax.  In addition to thanking staff for the report, I also want to thank Councilmembers Rocha and Peralez, as they were the ones who initially proposed that the City study this issue and suggested that the Council may wish to explore a compromise position.

As I said, I believe the Mayor's proposal is a good starting point, but I would like to take this opportunity to make three observations about the specifics of the proposal.

First, in item 1.c. in his memo, the Mayor proposes that the City "expand the current maximum per-firm caps."

I would like to suggest that the Council considers a cap that ensures that larger corporations pay a disproportionately higher percentage versus Mom and Pop small businesses.  The practical effect of a lower cap is to decrease the tax burden of the very largest corporations in San Jose, thus shifting a higher percentage of the burden to smaller businesses.

Second, I believe the (COLA) described in 1.d. must be at a rate that keeps up with inflation.  If the City adopts the approach of basing the COLA on CPI, and then capping the increase in any given year to provide some certainty for businesses, my recommendation would be to set the cap at 3%.

Over the past 19 years, the San Francisco-Oakland-San Jose CPI-U has increased an average of 2.7% per year.  A cap set at slightly above the average would help ensure that, over many years, the COLA would not lag significantly behind inflation over the long term.

Third, I would like to get a better idea of the Council's expected timeline for reviewing the ordinance and placing it on the ballot.  As the Council may know, our campaign currently has paid signature gatherers out in the field.  We are on track to collect enough signatures to place the gross receipts measure on the ballot in November 2016.

It would be useful to know when the Council planned to proceed. After the City Council considers the business tax modernization proposal, our campaign will make our decision as to whether or not to end our efforts to place a gross receipts tax on the ballot.

Again, I'd like to thank Mayor Liccardo, City staff, Councilmembers Rocha and Peralez, as well as the entire City Council for your work on ensuring that San Jose has the necessary resources to provide basic services to our residents.

Kindly,  Dr. Scott Myers-Lipton

31 Comments

  1. OMG…a rational discussion culminating in a fairly reasonable plan. There may be hope for our democracy yet.

    • Yet another uninformed voter who believes the USA is a democracy. Does our Pledge of Allegiance contain the words “and to the democracy for which it stands? NOPE! Does our Constitution contain the word “democracy”? NOPE. The US is a republic, Dunkerley, not a democracy. I’m not sure there is hope for our republic while so many people like you who are ignorant of the basic structure of our nation are allowed to vote.

      • Yeesh! Why the vitriol, and over a tiny nit? Nice job quashing even a mildly optimistic opinion. One understands the surprise posited by the original comment — rational discussion is truly surprising nowadays.

        • The difference between a democracy and a republic is not a tiny nit, Charly.

          • Should we become a true democracy JohnMichael? Be clear for us. Explain the difference between a democracy and a republic and describe which system you would prefer and why. Try to educate instead of demean others. You seem intelligent, why not put it to good use?

          • In the context of the original post, it *is* a meaningless difference. Or perhaps you can explain how the original comment’s message gets changed when substituting “democracy” with “republic”?

            And I think the USA can be described as a representational democracy as much as it can be said it’s a constitutional republic, FWIW…

  2. So, where is the professor getting the money to compensate his paid signature gatherers? Full disclosure should be required.

  3. Yet again I feel the slimy hand of big brother fondling my butt, trying to pick a few more dollars out of my pension check to pad their own.

    I’m thinking about changing my handle to “Empty Wallet!”

  4. Has anyone thought that this Lipton guy is an arrogant self-righetous dude, who thinks he has all the answers? Stand for an election or talk to folks, don’t negotiate with a gun to a person’s head.

  5. Businesses don’t pay the tax. It is passed on to the public in higher prices, less services, or less employment. This Myers-Lipton fellow, having his livelihood, benefits, and retirement paid for by the government i.e. taxpayers has an interest in ever more money being taken out of the private sector. Where is the accompanying information about how much revenue the various government entities collect and detailed information on how it is spent? Always it’s they “need” more and more yet basic services deteriorate.

  6. Hey Mayor, how do you like your paid consultant Pete Constant now? Do you still have weekly phone calls how to run the city?

  7. > Scott Myers-Lipton, who teaches sociology at San Jose State University, had been pushing an initiative that would tax large businesses based on revenues.

    “Sociology” is basically a pseudo academic discipline focused on intellectualizing and validating tribalism.

    Sociology, as an academic pretense, is relatively modern, dating only from the 1890’s.

    Many of the crackpot narcissistic vanity degrees like “ethnic studies” and “gender studies” are the products of the charlatanism of sociology departments and sociology professors.

    Gulling unsuspecting students and their parents into paying hundreds of thousands of dollars for useless degrees in “Black Studies” and “Womens Studies” is — in my opinion — criminal fraud.

    Colleges and universities that have offered these degree programs and collected tuition money for them should be sued and forced to disgorge the money that they have collected.

    Colleges and universities should also be liable for repayment of the loans that students incurred to finance these worthless studies.

    Instead of wasting any time considering Professor Myers-Lipton’s tribalist schemes for taking the honest earnings of local businesses, the authorities should be investigating Myers-Liption and his academic cabal for racketeering.

  8. Bubble, you’re pretty big on this tribalism thing. What is the antidote to tribalism?

    • > What is the antidote to tribalism?

      Tribalists lived in small groups, followed the tribal shaman, and made a living as hunter gatherers. They starved when they couldn’t find food.

      https://en.wikipedia.org/wiki/World_population#History

      “Estimates of the population of the world at the time agriculture emerged in around 10,000 BCE have ranged between 1 million and 15 million.”

      Anthropologists call tribal hunter gatherers an “immediate return society”.

      Then some exceptional humans invented herding and agriculture. When humans learned how to delay consumption, they learned how to produce excess food. Today, we call this “capitalism”, and capitalism supports a planet with a population of seven billion people.

      So, to answer your question, the antidote to tribalism is capitalism.

  9. Liccardo claims that a negotiated Measure B will save $1.1B over 30 years. SJ could simply issue a 30 year $1.1B bond and avoid any tax increase. It would provide a lump sum to improve SJPD benefits, fix roads (over a $100 million deferred maintenance backlog) and address other needs such as retiring costly debt. Our credit rating (which affects our borrowing costs) would be improved too.

    It’s an obvious solution and avoids the delay and uncertainty of a ballot item. It would have been proposed by SJ’s talented Finance folks if the latest Measure B savings claims possessed an iota of credibility.

    That this was not done makes Liccardo’s proboscis indistinguishable from Pinocchio’s.

    • LOL,
      Come on Taxpayer, who pays the bonds off with what? Your better than that!

      Did you fail Taxes 101?

      • Empty Gun,
        How to Lie With Statistics and Creative Accounting remain two of my most useful undergrad courses.

        Bond retirement? We’d pay off the bond with the golden shower of Measure B savings of course – an apt description of the soaking taxpayers would get.

        Similar to prosperity promises made to residents of Argentina, Stockton, Detroit, and Flint. Or Liccardo’s recently promised positive cash flow from hotel tax revenue to offset unreimbursed SJPD Super Bowl security costs. Hotel occupancy and tax revenue actually declined – we lost money. San Jose resident’s safety was sacrificed and pockets picked for a sporting event in another city.

        There’s a line between positive spin and blatant deception. Liccardo repeatedly crosses it.

        On a different note, the POA’s actuarial study (published during the run up to Measure B) remains the best analysis I reviewed. Certainly much better than anything I saw from CSJ. It’s a good template to evaluate actual (v. absurd forecast) savings.

        • > San Jose resident’s safety was sacrificed and pockets picked for a sporting event in another city.

          Well, I’m sure that Mayor LIccardo didn’t intend for things to happen this way.

          No, wait. I’m not sure.

          Actually, I have no idea what the Mayor intended.

        • Taxpayer,
          I’m glad you cleared that up, I took a similar class in “Rumors and Propaganda”45 years ago
          working for a government intelligent’s agency, likely the reason I’m such a cynic of anything
          someone from the government tells me.
          I read there book!

  10. Enough with the tax increases already. Over the last several elections, voters in Santa Clara County have passed multiple tax and fee increases including VTA’s 2000 Measure A ½-cent and 2008 measure B ¼-cent sales taxes, Santa Clara County’s Measure A 1/8 cent sales tax, the state prop 30 ¼ cent sales tax and the 2010 Measure B Vehicle Registration Fee of $10. Additionally, we’re on the hook to pay back numerous state bond issues including high speed rail, last year’s Proposition 1 water bond and the infrastructure bonds of 2006.

    For the politicians, taxes can never be too high.

    • Interestingly, none of those taxes affect businesses. Property owners and consumers have been paying more in taxes, and it seems only fair that businesses that benefit from our city services and infrastructure also contribute to maintaining our city.

  11. Taxpayer says, ” SJ could simply issue a 30 year $1.1B bond and avoid any tax increase.” Believe me, if it were that easy, we would have $100 billion in bonds outstanding. The problem is that a bond has to fit into one or another category. If the improved roads were made toll roads, that would provide a revenue stream that might support a revenue bond. Other devices are to pretend the bond is authorized by a joint powers agreement…that was how the new city hall was built…the city council members acting as the city council joined with the Financing Authority (same board members as city council) and issued a series of three so-called lease revenue bonds which are not paid off 12 years later.

    But the real problem with these bonds is that they take twice as much money to pay off as the face amount of the borrowed money. The Mercury News never explains this, but all this bonding is really part of the escalator of blue collar and middle class incomes and assets to the 1%. In Berryessa with its rapidly declining student enrollment numbers, we had a bond measure for around $70 million, overwhelmingly passed, but without any discussion about the fact that Berryessa residents will be paying twice that amount to very rich people and institutions in San Francisco and Los Angeles.

    • Dale,
      Thanks and yes – completely agree. Also, the city’s proceeds would not be $1.1B, but the present value of the time-adjusted savings stream over 30 years. I didn’t want to get into the complexities of municipal debt financing and used bond as short hand for a debt instrument.

      The point is that Liccardo’s claimed savings is so speculative that it defies credulity.