BUSINESS POLITICS - Earlier this year, the Mayor's Business Tax Advisory Committee (BTAC) which holds meetings, closed to the public, contracted with Charles Swenson, CPA, PhD to analyze modifying the "Gross Receipts Tax" (everyone else calls that the Business Tax) in ways which would be more supportive of the existing and potentially "new business" businesses in the City.
His August 3, 2011 report and the BTAC's recommendation to "eliminate the Gross Receipts Tax is on the Office of Finance website. I could poke holes in Dr. Swenson's report and the BTAC recommendation and will, if asked, do so.
The Valley Industry and Commercial Alliance (VICA) is a powerful and moneyed group of businesses which lobby vocally and "campaign contribution-wise" for their interests. This is understandable and not illegal but it is basically unfair to groups who are less affluent or less organized. VICA has "launched a heroic campaign" to eliminate the Business Tax, altogether. (Link)
They too, evade calling the Business Tax the Business Tax and give it an "evil" connotation as the "Gross Receipts Tax." Their literature implies that eliminating the Business Tax is the "wave of the future" with increasing, if not "unanimous," support in the business and "community." (When, by the way, did you hear this information deliberated in any Neighborhood Council meetings? When did VICA offer to present any of its points-of-view at a NC meeting?)
I had the chance to exchange a few words with Stuart Waldman (VICA CEO) at a meeting last week. He used phrases like businesses are the "job creators" and the primary source of the City's economic success. It reminded me of the descriptions of the 1% of extremely wealthy people (who own 24% of the assets) vs. the 99% of the population (the workers ... many of whom are still out of work) which is at the core of the U.S. Congressional Economic "debates."
I reminded Mr. Waldman that his "job creators" are "profit makers" before ... long before ... they create any new jobs. When the economy turned down, his "job creators" downsized their companies (fired thousands of employees) in an attempt to preserve their profits. Businesses, in essence, have caused the unemployment ... but ... oh well ... that's just business.
If these businesses would take a hard look at themselves, they might state, like Pogo, that, "We has met the enemy ... and they is us!!!!"
The City Administrative Officer responded, in no uncertain terms, that cancelling the Business Tax was not a good idea.
Contrary to the above persiflage ("sound & fury"), there IS much that is unfair about our City's Business Tax and there is much that could be done to reform it into a respectable and more valuable part of the City's Income.
The Business Tax is 10% ($424 million) of our $4.3 billion General Fund. Therefore, it is not easily eliminated without severe consequences. Companies whose charges include the costs of sub-contracted services (services provided by other companies) necessary to their products and/or services) must pay a tax on that work, too. That is a taxation of the business's expenses and a "double taxation" when the sub-contracting company is taxed, as well.
Small and "new" companies need some consideration so that Business Taxes do not over-tax (pun intended) their ability to get established and to grow.
For several years, I and others have proposed converting the Business Tax from a gross income tax (lower case lettering intentional) to a Net Income tax, reported on the company's federal I.R.S. Tax Forms (e.g. Schedule C of the Form 1040, etc.). Using these values could remove the unfairness of the "pass through"/double taxation and would identify the "new" and "small" companies needing special (decreased) taxation.
Better still, the amount of tax due would be known on April 15th (Federal Income Tax day) and permit payment in late Spring or even in July. If the Business Tax was collected in July, it could decrease or even cancel the need for the Tax Revenue Anticipation Notes (TRAN). It could permit the City to decrease the TRAN to be a realistic "line of credit," not a (27% of the General Fund) threat to the solvency of the City.
The point is, there are ways to help businesses without eliminating the business tax and jeopardizing the City’s income and in the process reducing critical services the public needs and has a right to expect. But hard-line attitudes by those with different interests in this dilemma will not find those solutions or heal the wounds this argument has opened.
Let’s roll up our sleeves, park the my-way-or-the-highway approaches at the door and get on with trying to save our City.
(Daniel Wiseman is a long-time neighborhood council activist and Secretary of the Neighborhood Council Budget Advocates Committee.) –cw
Tags: business tax, city revenue, General fund, VICA, taxpayers, Los Angeles, neighborhood councils
CityWatch
Vol 10 Issue 1
Pub: Jan 3, 2012