The new bogeyman in Silicon Valley politics? The IPO.

If you thought that an initial public offering was all bell-ringing, confetti-dropping, and champagne-popping, think again.

Silicon Valley is girding for another political battle with the liberal city at its core, San Francisco, in a contest that could turn that celebrated pinnacle of success in tech — the IPO — into a bogeyman.

In a new fault line that reflects the uncomfortable politics of tech opportunity and wealth inequality, San Francisco’s board of supervisors is on pace to put before voters a ballot initiative this November that has quickly become known as an “IPO tax.”

But it isn’t really an IPO tax — at least if you’d imagine that an IPO tax would be a source of new revenue levied against an executive or investor enjoying their IPO riches, like a capital gains tax. Instead, it is an increase in the preexisting payroll-like tax that employers will have to pay to 1.5 percent, or $15 on every $1,000, of the value of any compensation that the employer pays in shares.

Yet the initiative speaks to how the new wealth creation by the tech industry has become a useful political weapon. Calling this an “IPO tax” might not be accurate — nor is it actually a levy on the tech sector, per se — but it is good marketing. And how the initiative is being sold in San Francisco tells you a lot about the temperature these days, and how the Big Bad IPO has become a villainous creature.

“What’s disappointing is the blatant misleading of the title,” said Rodney Fong, the CEO of San Francisco’s Chamber of Commerce, which is leading the pushback. “By using the phrase IPO, it’s assumed it is just [a tax on] the ones that are going to go public.”

The IPO has increasingly become a piñata for critics of a freewheeling tech industry, a stock debut that draws attention to the size of billion-dollar companies and to the many millionaires they creates.

Ride-hailing service drivers capitalized on the run-up to Uber’s much-scrutinized IPO last week by drawing a contrast between the new riches of its executives and their own discontent over low wages and lack of benefits. A small number of residents in Venice, California, protested outside Snap’s headquarters in advance of its IPO, saying the company was “exploiting our neighborhood for their gain.” One of Lyft’s IPO roadshow meetings in San Francisco was picketed.

More broadly, the IPO is a pressure point, a moment of vulnerability as a company transitions from private ownership to public scrutiny: Spotify, for instance, felt heat from investors in advance of its IPO to strike long-term deals with the major record labels.

This all comes to the fore at a sensitive time in a sensitive place. Silicon Valley has been on edge about the amount of wealth to be unleashed into its neighborhoods and startups in the busy 2019 IPO season, which — once lockups expire on stock sales — will turn thousands of early employees and early investors into real-life, not-just-on-paper millionaires.

That uneasiness would already be pervasive even if it weren’t for the reinvigorated conversation in the Democratic Party about Big Tech and more broadly about growing income inequality — especially in places like San Francisco, where billionaires live a few blocks from people experiencing chronic homelessness — which has made the situation even more delicate. Then you can throw in that, Democratic presidential candidates are calling out tech companies for being too big and powerful.

So “the IPOs” has become a shorthand for how a region riven by inequality preparing to stomach even more.

“The simplest way to draft it” may have been a miscalculation

The sole solace might be that this is all taxable. The state of California predicts that it will rake in about $700 million in taxes related to this year’s tech IPO, not including the new IPO tax. And in that crisis, there is an opportunity for politics.

Gordon Mar, the San Francisco supervisor who drafted the proposal, said the IPO tax was not his marketing and that he wasn’t trying to cater to tech skeptics. He told Recode it was merely a “convenient public name” for the measure that was born out of his desire to “look at how we could mitigate the impact of the IPO earthquake.”

Mar’s mission is admirable: He is trying to raise what he predicts would be an extra $100 million to $200 million from the proposed tax’s first two years to address widespread social ills in San Francisco through a new “shared prosperity” fund to support things like affordable housing and education.

But Mar is backpedaling, already.

He revealed in an interview that he was actually in the process of paring back — perhaps significantly — what he described as a first draft of the motion. Mar acknowledged that, as written, the initiative would assess a tax on all stock compensation from San Francisco-based public companies — say, a worker at Wells Fargo who is paid partially in stock — when he said he was actually intending to focus more modestly on the current pipeline of tech IPO candidates.

So why did he take such a big swing? Well, Mar described this as “the simplest way to draft it” and crucial to “getting on the fast track.” But that rush and lack of detail may have drawn a bunch of other companies into the dragnet and has led to widespread confusion in tech circles, especially because the measure would be enforced retroactively.

“It was my understanding that the impact would be fairly minimal and the most impact would be on the companies that are holding IPOs — because that’s when there’s such a concentrated number of employees with stock options being exercised,” he said. “That’s something I think we’re going to look into: how the measure would impact a broader set of companies here in San Francisco.”

Another possible issue in the drafting: As written, the initiative seems to assess a tax against stock as soon as it vests — even if the actual stock option is not exercised. Asked whether that was his intention, Mar said he at first did not fully appreciate the difference.

“That’s even something that I don’t fully understand — having not been in the position of having stock compensation myself,” he admitted. He’s now planning to revisit that.

If the Chamber of Commerce can convince Mar to change his proposal, then maybe they’ll avoid a political fight. But as of now, Mar seems to have enough support from the Board of Supervisors to pass the initiative measure and put it before voters in November.

A fight is brewing like the one in 2018

The fight over an IPO tax has elements of a powder keg waiting to be lit. In late 2018, technology companies went to war with one another over Proposition C, a ballot measure passed last November that levies a new tax on some San Francisco companies to raise money for programs to combat homelessness, which more than 28,000 people experienced in the Bay Area in 2017. That fight uncorked an at-times vicious, personal fight between some of the city’s most prominent figures.

But so far, both sides are biting their tongues. A spokesperson for Marc Benioff, the garrulous billionaire who vocally (and, to some, abrasively) advocated for Prop C last fall, said he didn’t have anything to add on the IPO tax proposal.

Benioff’s opponents during that political battle — primarily Stripe and Jack Dorsey at Twitter — have so far held their fire. Both San Francisco-based companies declined for now to take a stand on the proposal. Also declining to weigh in were city IPO pipeline candidates like Airbnb and Postmates, which told Recode in a lengthy statement that the public and private sectors should be “working together” on this but then did not respond to requests for comment about whether they actually supported or opposed the proposal. That reticence should tell you something.

The business world might also explore potential legal challenges. Some experts also say that a retroactive tax like this — if passed in November, it would go into effect retroactively on May 7, 2019, the day before Uber’s IPO — could be considered unconstitutional as a so-called ex-post-facto piece of legislation.

Jared Walczak, a tax policy analyst at the conservative-leaning Tax Foundation, said “there’s long been a gray area” in federal law about taxes that try to roll back the clock.

“There is some bar that you have to clear to tax retroactively that exceeds the bar that you will need to clear to impose a tax prospectively,” he said. “Certainly, there could be an avenue for a challenge.”

Silicon Valley prepares to get punched

Meanwhile, Silicon Valley has to prepare for what could be a new reality.

The San Francisco Chamber of Commerce and other critics predict that if the city initiative is approved, more tech companies will alter their compensation practices. They may rely more heavily on cash compensation as opposed to stock, which would cap employees’ financial upside if they happen to be working at the next hot company. Another unintended consequence, in the eyes of skeptics, is that San Francisco companies could start finding ways to change where their employees are officially headquartered to avoid the new bill.

Area wealth advisers told Recode that their clients have been bringing up the city proposal to them in recent weeks, watching and waiting to see whether it earns enough support on the board and then passes in November. But there’s nothing the employees can actually do in practice — they can’t force their employers to leave San Francisco, of course — so there’s limited use in worrying about it.

While few in the business community expect a corporation to pick up their stakes and relocate, they do say it could tip the balance for future startups trying to decide where to pitch their tent.

To some, like Mar, that might be okay. Critics of Big Tech think it has for too long coasted on city services without being a good neighbor, and are now facing increased pressure to assess their civic responsibilities.

Robert Nelsen, a biotech venture capitalist who works with some companies headquartered in San Francisco, said he was supportive of city corporations paying more in taxes to improve things like mental health. But not this way.

“If you wanted to think about the most volatile tax that you could possibly imagine, it would be an IPO tax,” Nelsen said, worrying that San Francisco wouldn’t draw any revenues in a downturn and might draw too much revenue in a bull market. And, he predicted, it would encourage new companies to start startups outside of San Francisco: “We have that choice all the time. It’s easy to put companies five miles away or four miles away.”

“Bad tax policy is kind of like a viral disease,” he said, “it’s hard to get rid of.”

Recode and Vox have joined forces to uncover and explain how our digital world is changing — and changing us. Subscribe to Recode podcasts to hear Kara Swisher and Peter Kafka lead the tough conversations the technology industry needs today.