There are many reasons the payroll tax break San Francisco extended to Twitter was horrid public policy; here's just one: San Francisco is a high cost, high service city in the mold of New York.

 It's a premium product, albeit not as premium as Gotham -- the transit and nightlife are inferior, for example, and it's not dense enough. But then SF's payroll tax rate is less than half that of New York's personal income tax. You get what you pay for.

San Francisco, then, should not be trying to compete on cost with dreary suburbs like San Bruno, where Twitter threatened to relocate. Doing so just leaves less money to maintain the services that make SF unique (to say nothing of improving them). And it's a losing game besides. There will always be a cheaper location than SF. 

It's especially bizarre that San Francisco supervisors caved to Twitter and handed over a $22 million tax break at the precise moment the city's cosmopolitan advantages are finally pushing it past the unremarkable cities clustered around Stanford University.

Here's Y Combinator partner Harjeet Taggar in 7x7 magazine yesterday:

San Francisco is becoming Silicon Valley. The city used to be seen as not part of the Valley. But Twitter, Zynga, Square, and our most successful companies from YC — Airbnb and Dropbox — are all there.

The biggest problem I'm seeing our graduates having is the problem of hiring. The main demographic they seek is engineers in their 20s and those guys want to live in San Francisco. The majority of YC grads head to the city now.

Why do engineers want to live in San Francisco? 

Well, the startup geeks at Hacker News say they like "not driving -- I work at Dolores Labs and live 5' away." They also like "having options when I don't feel like working. I can walk to the park where beautiful girls do non-programming things like laughing while blowing bubbles! I can go get a beer and watch a movie. I can walk and grab a quick bite at taqueria cancun. I can go to a club. I just love the energy and excitement here."

For the record, payroll taxes like those dodged by Twitter are what pay for parks with beautiful girls, mass transit to avoid driving, etc.

Then there's this, also from Taggar:

Besides, in my opinion, if you have a social product, it's really important to live amongst your users. For example, if I were building an app to target bartenders to help them build their own brands, I would want to be in San Francisco, not the Valley."

Being closer to users and customers; exploiting the rise of urban-centric mobile tech;  attracting young talent; proximity to a diverse array of non-tech experiences -- these also happen to be the very things said to be combusting New York's "exploding" tech scene.

A similar cluster of urban advantages is also apparently making UBS come back to New York from Connecticuit ("the best and brightest young bankers want to live in Manhattan or Brooklyn").

<Just for the record again: When the economic meltdown sent its budget into a tailspin, New York's business savvy Republican mayor knew exactly what to do. And it didn't involve issuing a crony capitalism groupon to a lavishly overfunded "business" with no plan for generating revenue. Bloomberg maintained the quality of his offering. New York didn't get on its knees and neither should San Francisco.

[Montgomery St. SF photo via Thomas Hawk/Flickr; Mission hipster photo via Dustin Diaz/Flickr; picture of bullshit Twitter philanthropy via this video of endless naked hypocrisy]