‘Ax the Tax’ movement finally gaining momentum

A wise small-town politician once said that if a decision is unanimous, you are likely a decade behind. Forward-thinking policies are often some of the most controversial when they are first considered. This is why the recent strides toward business tax reform in the City of Los Angeles, while welcomed, are late to the party. The Valley Industry and Commerce Association (VICA) has been pushing for tax reform in the city for years. The gross receipts tax rate in Los Angeles is 9.5 times higher than the average for other L.A. County cities, and many neighboring communities have no business tax at all. Calls to “ax the tax” in order to attract businesses and spur economic development are a common VICA request. It has taken nearly a decade, an unemployment rate of 14.8 percent and jolting economic downturn to even get city officials to begin to consider tax reform. A proactive approach to reform could have even improved our current situation. It has finally become clear to more than just business leaders that the private sector drives economic recovery. In order to see change, government must pass polices that support business development and job creation. The Business Tax Advisory Committee (BTAC) recommended in September of this year that the city completely eliminate the gross receipts tax through a four-year phase-out plan. The recommendation was based on a report by Charles Swenson, CPA, Ph.D, which confirmed VICA’s stance that eliminating the gross receipts tax could bring hundreds of millions of dollars in additional revenue to the city through increased economic output. The study lays out the gamut of possibilities, with revenue neutrality at one end of the spectrum and a $263 million increase to city revenue at the other. Calculations based on Swenson’s findings even suggested a larger revenue bump if the anticipated improvement in the employment rate are considered. An estimated 131,000 jobs would be created by the elimination of the gross receipts tax, according to the report. Recently, some more modest proposals have gained support. The City Council has moved forward with a plan to extend its business tax holiday for new businesses for an additional three years. While VICA is happy to see some progress, this just is not enough. Mayor Antonio Villaraigosa is also pushing to eliminate the gross receipts tax for auto dealerships. But why not “ax the tax” for all businesses? A comprehensive proposal has been researched and drafted by BTAC and now is the time for action. Our economic environment has made the incremental process of governmental change obsolete. The business tax is stifling economic development in Los Angeles and needs to be eliminated. This critical process must begin now. Our businesses and residents cannot afford to wait for a comfortable and unanimous decision about business tax reform. Comprehensive reform is needed and elimination of the gross receipts tax is the crux. It’s time for city leadership to look beyond the next election and really focus on fixing the problems that are stopping Los Angeles from reaching its full potential. VICA commends the City Councilmembers who have supported the BTAC proposal to phase-out the gross receipts tax and urges their colleagues to join the call to “ax the tax.” Should the city’s gross receipts tax be eliminated? What other reforms could the city implement to be more business-friendly? Email your responses or thoughts about the column to [email protected].