Tax breaks would create jobs, fuel deficit 

Mayor Gavin Newsom’s business tax break proposal would generate thousands of jobs in San Francisco during the next two years, but it would increase The City’s budget deficit, according to a report released Wednesday by the Office of Economic Analysis.

The proposal, which is intended to encourage job growth, consists of a two-year payroll tax “holiday” for new hires. According to the report, it would generate as many as 4,330 jobs through 2011. At the same time, the tax break would cost The City as much as $72 million in lost revenue at a time when it’s facing a $522 million budget deficit next fiscal year.

“We understand the concerns about the budget impact, but we have just as great of a concern about the thousands of San Franciscans who are out of work,” said Tony Winnicker, a Newsom spokesman. “One of the most important things we can do right now is to incentivize small business to create jobs.”

San Francisco has lost 36,000 jobs in the past two years, bringing the unemployment rate to 9.4 percent.

The proposed tax policy, which mirrors President Barack Obama’s New Jobs Tax Credit, has serious political implications. This week, Newsom proposed shortening workweeks for as many as 12,000 city employees. The move would save $50 million next fiscal year.

Implementing the tax proposal would force deeper cuts to city staff and services, according to the report.

Furthermore, many businesses would likely add 20,000 even without the tax incentive, according to Ted Egan, The City’s chief economist.

The report cites several alternatives to help offset the revenue loss, including capping the maximum tax credit per business or limiting the policy to small businesses. Winnicker said the mayor welcomes a debate to craft a strong policy that will balance job creation and the budget. 

The analysis was conducted after Supervisor John Avalos refused to calendar the mayor’s tax proposal for discussion at a board committee, calling the tax breaks dead before arrival. Avalos maintains reservations about the proposal, yet he has scheduled it at Wednesday’s Budget and Finance Committee meeting.

“My biggest concern is the cost,” Avalos said. “It seems like if there is ever going to be anything approved, it will be an arduous process.”

Taxing proposal

4,330 Jobs proposed tax break would create through 2011

36,000 San Francisco jobs lost in past two years

$72 million Two-year cost to city of proposed tax break

$522 million Projected deficit for 2010-11 fiscal year

Source: Office of Economic Analysis

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