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Beyond Chron
October 29, 2004

Copyright © 2004 by Marc Norton

Scott Hauge is a man on a mission, the guy that the opponents of Prop K have made their spokesman. Prop K would bring back the gross receipts business tax that was spiked a few years back by a cabal of big-time downtown corporations, lovingly dubbed the 'Filthy 52' by the Bay Guardian's Tim Redmond.

Hauge runs an outfit called Small Business Advocates. Anytime the downtown boys want to beat up on a business tax proposal, they weep a flood of crocodile tears about its effect on their small business brethren. This is the political equivalent of putting women and children in front of your advancing troops.

Well, here's a sound bite for Yes on Prop K. Hauge gets a big break on his business tax bill. He doesn't have to pay the full amount of the payroll business tax that most of his other small business friends currently pay. And, if Prop K passes, as it should, then he won't have to pay the full freight on that either.

How come, you say? Because Hauge runs Cal Insurance. State law prohibits local communities from taxing insurance agencies. That is one of the strange tax loopholes dreamed up by those who plow the fields of Sacramento with the cash from their corporate fortunes.

During a telephone interview with Hauge in late September, I asked him if he pays the current payroll business tax, and whether or not he would pay the full gross receipts tax if Prop K passes. His answer was "not when I am acting as an insurance agency, but yes when I am acting as a broker." Not having any friends in the insurance business myself, I can't tell you how often Hauge is an agent, or how often he is a broker. Perhaps I should have asked him that question.

But I do know that there aren't any corner grocery stores that get this tax break.

During my interview with Hauge, he waxed poetic about how unfair the gross receipts tax would be on small business. He acknowledged that Prop K would exempt all businesses that had gross receipts below $500,000 -- that's half a million bucks. I doubt that includes very many corner grocery stores either. My conversation with Hauge took place before Mayor Gavin Newsom proposed to legislatively raise the exemption to $2 million.

Hauge pitched part of his opposition to Prop K on the claim that a new gross receipts tax would constitute "double taxation." As best I could understand it, his premise is that businesses currently pay the payroll tax out of the very same gross receipts that would be taxed by Prop K. So, he says, businesses would pay tax on money they are paying out in tax. Working stiffs like you and me do this already. For example, we get a good chunk of social security tax deducted from every paycheck, but I sure can't find any place on my 1040 where I can deduct those payments from my income tax bill.

I asked Hauge if he supported Prop J, the proposed increase in the sales tax. He said that the campaign was not taking any position on Prop J. Of course, sales taxes hit poor and working class people the hardest, not the business crowd. Hey, I realized later, aren't sales taxes "double taxation?" I am looking at my 1040 again, and I can't find any place where I can deduct those tax payments either.

Regular readers of BeyondChron may recall that I have had a few critical things to say about the process by which Prop K ended up on the ballot. It came from a backroom deal brokered by the Mayor and downtown, and iced out the more progressive representatives of the people at city hall. It certainly could have been at a higher rate, as Supervisor Chris Daly proposed. It also could have been permanent, instead of expiring after four years.

But a bird in the hand is worth a thousand in the bush. If Prop K passes, the downtown corporate elite will at least have to pony up something to help pay the piper. Let's hope that the voters of San Francisco see through the smoke and mirrors being conjured up by the No on Prop K crowd.

As part of the No on Prop K pitch, Hauge claims that he and his small business friends would have been willing to agree to an increase in the payroll tax, instead of a renewed gross receipts tax, if only the powers-that-be had consulted with them before putting Prop K on the ballot. He claims that a payroll tax increase would hit small businesses less hard.

If Prop K fails at the ballot, will Hauge and his allies then support an increase in the payroll tax? That might be a good question for November 3.