When faced with losing one of the most brilliant companies in the country, Twitter, even San Francisco can have a moment of revelation regarding tax policy.
Burdened with heavy California taxation—and San Francisco’s on top of that—Twitter presented a letter to the San Francisco Board of Supervisors giving them an option: either exempt Twitter from the city payroll tax for six years or watch the tweeting company walk. The board decided in favor of Twitter’s proposal, and Twitter signed its new lease last Friday.
California is a progressive state that has been struggling with budget issues and companies fleeing the heavy tax burden for years. The city recently lifted its 1.5 percent payroll tax on businesses in the Central Market and Tenderloin areas for the next six years on any new hires in order to bring growth and jobs to those areas. This very small move in the most left-leaning area of the state shows that maybe—just maybe—the dark does indeed come before the dawn.
Companies left paying the payroll tax are still at a disadvantage. Getting rid of the payroll tax for all in San Francisco would give more companies a fair opportunity—there is no reason this trend cannot be continued across the city and state. What’s good for Twitter is good for other companies as well.
This faint recognition that economic growth is something that can be spurred through low tax rates is something that, as strange as this sounds, Congress could possibly now learn from San Francisco. Heritage economist Curtis Dubay writes, “The individual income tax and corporate income tax are both serious drags on the economy. … If the president and Congress worked together to reform the tax code in a revenue-neutral manner—that is, without raising taxes—the resulting simpler tax code would free individuals and businesses to use their time and resources to seek out more promising opportunities.”
That, after all, is what Twitter is doing. On their blog they wrote:
We are proud that Twitter will be among the first companies moving into the Central Market area and will be playing a role in its renewal with the city and with other businesses, arts organizations, and numerous community organizations that have been doing hard work in the neighborhood for many years. … Three-quarters of our employees who live in San Francisco are involved in causes and charities in the city. Our employees are excited to be active members of our future neighborhood as volunteers, customers, diners, and patrons of the arts.
In the last year, due to excessive spending levels and the highest corporate tax rates in the world, the United States fell to ninth in The Heritage Foundation’s Index of Economic Freedom. While some argue the only way to pull our country out of economic crisis is to both cut spending and raise taxes, former OMB and Treasury economist and Heritage Senior Fellow J. D. Foster writes:
Those who argue that taxpayers must pay more to create a fiscally responsible federal policy are simply incorrect. Spending must come down far below current projections. Even those who advocate tax hikes grudgingly acknowledge that reality. The debate is whether spending should come down enough to restore a sound overall fiscal policy, or whether spending should come down less and taxes should go up more to pay for the additional spending. This is a policy choice.
While this tiny tax break in only a portion of one city leaves much to be desired—and comes nowhere close to serious tax reform on a national scale—it does make a point: Economic freedom spurs innovation and creates jobs. One can only hope that this trend will pick up speed in the city and state—which so desperately seems to need a magic pill right now to fix what ails it. The City by the Bay has tried helping people through social programs funded by heavy taxation. Now, perhaps, maybe they can see people more adeptly helping themselves through a business-friendly environment.
The U.S. right now is faced with the same choice that San Francisco faced with Twitter: lower taxes and address runaway spending or watch U.S. companies walk.