S.F. CEO tax could raise $300M a year, but might cost 900 jobs, controller says

A new report from the San Francisco controller’s office says Proposition D, also known as San Francisco’s “overpaid CEO tax,” could bring the city hundreds of millions of extra dollars a year, but could also cost jobs and slow down the local economy. 

San Francisco would have 944 fewer jobs in any given year, on average, over the next 20 years, the report found, and $206 million less in annual gross domestic product. But it would also see up to $300 million in new city funds from taxes every year.

The projected loss of 944 jobs represents 0.1 percent of all jobs in San Francisco, according to Ted Egan, the city’s chief economist.

The findings come just weeks before the June 2 election, when voters will decide whether to sharply raise taxes on large companies with wide pay gaps between top executives and typical workers. 

Supporters, including labor groups, say the money is needed to help close the city’s $607 million budget deficit and protect public services. Opponents, including several billionaires and city corporations, say the measure could make San Francisco more expensive for major employers and push companies to move jobs elsewhere.

The existing tax — the Top Executive Pay Tax — applies to certain large businesses with wide pay gaps between top executives and typical workers. An analysis found that some of the firms fighting the tax had CEO-to-worker pay gaps up to 1,690-to-1.

Prop. D would raise taxes on some large companies where executives make far more than regular workers — including company workers outside the city. That change would also mean more companies would be subject to the Top Executive Pay Tax than are today.

The controller’s office estimates that Prop. D would raise $250 million to $300 million a year in direct taxes for the city’s General Fund. 

But the report says that added revenue would come with economic costs, namely an average loss of 944 jobs over the next 20 years and a decrease of $206 million in the city’s gross domestic product. 

According to the report, the higher tax would fall heavily on large companies in the information, retail and financial sectors. Those sectors have already been reducing their share of the workforce in San Francisco since the pandemic, a trend the controller’s office describes as evidence of a weakening business tax base. 

The report also cautions that its forecast may understate the economic risk, because it does not fully account for how large companies might respond. They might move more jobs out of San Francisco or shrink their local offices, for example, further weakening the city’s job base and reducing future tax revenue.

The analysis comes amid a broader political fight over how San Francisco should raise revenue as it faces budget deficits.

Labor supporters of Prop. D have argued that large corporations should pay more to help protect city services. Supervisor Connie Chan has made a similar case, framing the measure as a way to bring in money from companies with large executive pay gaps.

Business groups, meanwhile, are backing Proposition C, a competing June measure that would raise the overpaid CEO tax more modestly while expanding the small-business exemption. 

The fight over whether to raise the overpaid CEO tax also reopens a piece of the 2024 business-tax compromise known as Proposition M, which was supported by labor, business groups and city leaders, including then-Mayor London Breed and then-Board President Aaron Peskin.

That measure reduced the overpaid CEO tax as part of a broader tax overhaul. 

Prop. D would reverse that part of the deal, and puts the question back before voters.

This story was updated to add the projected job loss percentage and the most recent deficit number, and to clarify the job loss totals.