Office of the Controller's Economic Impact Analysis: Temporary Revision of Payroll Tax Expense

The San Francisco Office of the Controller has released a report on the economic impact of a temporary revision of the payroll expense tax (what is this?).

The proposed tax policy would allow San Francisco businesses to pay no tax on any growth in payroll that they experience in 2010 or 2011. Currently, the city levies a 1.5% tax on large and medium sized businesses. Under the policy, growing businesses would be incentivized to add jobs in San Francisco, since net new payroll would be essentially tax-free for the two year period.

The policy is projected to have a significant impact on job creation in San Francisco, offsetting between 5% and 8% of all jobs lost in the city over the past two years, with some employment continuing after the policy expires in 2012. At an average cost of $16,500 per job during the two year period, the proposed policy is one of the most cost-effective local economic policies available.

However, the job creation would come at a significant cost to the City's General Fund, of $28 million during the first year, and $44 million in the second year. This cost is net of the additional tax revenue generated by the jobs created by the policy. The policy can be further tailored to reduce the cost to the City, although reduction in the scope of the incentive will also reduce its impact on unemployment in San Francisco.

You can read the entire report, here.