The ink was barely dry on San Francisco’s hard-won 2024 business tax overhaul before business and labor groups started shredding it.

Now, with voters set to decide on dueling ballot measures June 2, the city economist is warning that the more aggressive of the two — Proposition D, the Overpaid CEO Tax — could cost San Francisco nearly 1,000 jobs and shrink the local economy by more than $200 million annually over the next two decades. 

Prop. D would raise the city’s tax on companies with extreme CEO-to-worker pay gaps, while the opposing measure, Prop. C, would lock in reduced rates negotiated in 2024 and expand exemptions for small businesses.

The findings, released in a report (opens in new tab) by Chief Economist Ted Egan, offer a sobering outlook on Prop. D just three weeks before Election Day. 

Among Egan’s concerns is that the measure would be a stumbling block to an economy that has yet to recover to pre-pandemic levels. Additionally, Egan wrote, quickly reneging on the business tax changes outlined in Prop. M, which passed overwhelmingly in 2024, would “encourage further relocation out of the city.”

Prop. M was assembled by a coalition of small-business owners, large corporations, and city officials to adapt San Francisco’s tax structure to the realities of remote work, which had hollowed out the city’s base of downtown office jobs. 

The measure cut the Overpaid Executive Tax rate (opens in new tab) by 80% and restructured how companies were taxed by the city — shifting from a payroll-based system to one oriented around gross receipts.

The OET has roots in the pandemic. In November 2020, San Francisco voters approved Prop. L by a 65-35 margin (opens in new tab), imposing a surcharge on companies whose highest-paid executive earned more than 100 times the median pay of the workforce. 

The tax took effect in January 2022 and, at its peak, generated roughly $140 million annually for the city’s general fund.

Prop. D would make the OET rate even higher than it was in 2022. As a result, affected businesses — mainly in the tech, finance, and retail industries — would likely be encouraged to reduce employment in San Francisco or raise prices for consumers; both would “weaken the city’s economy,” Egan wrote.  

“If the city deferred major business tax policy changes until its economy and finances are stabilized, the long-term risk to the economy would be mitigated,” he added. 

The economist’s analysis lands at a fraught moment for the city’s finances. San Francisco is staring down a $643 million deficit and the threat of hundreds of millions more in federal cuts. Prop. D supporters have framed the measure as a response to those cuts, arguing that the city cannot afford to leave hundreds of millions in potential annual revenue on the table. 

The report acknowledges the tension directly: Prop. D could generate up to $300 million annually for the city’s general fund, which would go a long way toward closing the budget gap. But that might be balanced out by the economic hit to the city. 

Egan cautioned that his projections on job losses and the economy at large may be conservative, since the model relies on industry averages and doesn’t account for the behavior of large companies that are already downsizing their San Francisco presence. 

Prop. D’s rival on the ballot, Prop. C, charts a more modest course. Written by the SF Chamber of Commerce and other business groups, Prop. C would preserve the current OET rates while expanding the small-business exemption from the current $5 million to $7.5 million. 

The controller’s office projects that Prop. C would reduce the city’s revenues by $30 million to $40 million annually. However, the measure would have a marginal positive impact, creating an average of 90 jobs annually over the next 20 years and a gross domestic product gain of $20 million. 

Unlike the proposed statewide Billionaire Tax on the November ballot, the winning local measure would go into effect immediately if it passes in June. If both measures pass, only the one with more votes takes effect. The Chamber of Commerce’s decision to put Prop. C on the ballot was a political strategy to siphon votes away from Prop. D.