NCPA - National Center for Policy Analysis

Tax Breaks for the Well Connected

April 13, 2011

Twitter threatens to bolt for the 'burbs and squeezes a concession from its host city.  It's an old story -- and a study in how the high cost of government and corporate welfare go hand in hand, says Investor's Business Daily (IBD).

  • San Francisco's Board of Supervisors has just given the fast-growing company a six-year holiday from the city's 1.5 percent payroll tax for new hires -- of which Twitter expects quite a few.
  • It has about 350 employees now, but it's projected to grow to 2,000 in the next few years.
  • By the San Francisco Chronicle's estimate, the tax break will save Twitter $22 million over six years.

There's a catch, but it's not burdensome.

  • Twitter will have to set up shop in a depressed neighborhood that the city wants to revive.
  • Other firms can get the same tax advantage if they move to the same area.

This makes Twitter's deal legal and frames it as economic revival rather than corporate welfare.  But such window dressing doesn't hide the fact that, in essence, this is a favor to a high-profile company that has learned how to pull political levers.

Some other businesses reacted to the Twitter deal by asking the logical question, "Why not us?"

But there hasn't been much talk about the root of the tax problem -- the high cost of government.

The real losers are businesses that are too big to avoid the payroll tax (which kicks in for payrolls over $250,000) and too small to influence City Hall.  Among these may be some of the big-growth stories of tomorrow -- the next Twitter, perhaps.

Source: "Playing Favorites in San Francisco," Investor's Business Daily, April 8, 2011.

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