Analysis: Plan for Massive Oakland Business Tax Hike Would Be Ruinous for Jobs Recovery, Economic Growth
A proposed business tax increase the Oakland City Council is exploring would jeopardize the city’s already lagging jobs and economic recovery, make it harder for the city to attract and retain employers, investment and jobs, and produce greater volatility in the city’s business tax receipts, according to an analysis released today (March 24) by the Bay Area Council Economic Institute.
The plan would increase taxes on the city’s largest employers by up to an unprecedented 760%, give Oakland the region’s second highest business tax rate, and undermine its competitive advantage against other large cities, the analysis found. The analysis examined a proposal put forward by a Blue Ribbon Task Force appointed by the City Council. A revised plan that includes additional taxes is scheduled for review on March 31.
The Economic Institute analysis also revealed that a study of the impacts of the tax hike commissioned by the City Council may have badly underestimated the potential job losses. The City Council study estimated that increasing the business tax could result in a direct loss of 2,000 office jobs, but it failed to account for the many other local and regional jobs that those office jobs support, which could number in the hundreds and possibly thousands and primarily impact small businesses in the service, retail and hospitality sectors. Nor did the City Council study account for any future loss of jobs as a result of businesses and investors going elsewhere to avoid the region’s second highest business tax rate.
The timing for the City Council’s proposed tax increase couldn’t be worse as Oakland struggles to recover the many thousands of jobs lost during the pandemic. The Economic Institute analysis found that Oakland, as part of the larger East Bay labor market, has the worst jobs recovery rate of any area in the region and across the country at 58.3%.
Increasing the business tax would also undermine some of the momentum that Oakland had made prior to and even during the pandemic in attracting large new employers and investment, the analysis found. Without that and with companies looking at lower-cost cities to locate, the Economic Institute analysis found that construction of new office buildings would slow down, resulting in fewer jobs and lower tax revenue for the city.
“The unintended consequences and ripple effects of this massive tax hike proposal would not only seriously hobble Oakland’s slow recovery from the pandemic but would jeopardize the city’s longer-term prospects for growing the economy, attracting jobs and securing new companies and investment,” said Jeff Bellisario, Executive Director of the Bay Area Council Economic Institute. “It would also place unhealthy reliance on large companies for a bigger share of city budget revenue that could disappear if employers flee to less costly locations.”