WPC releases B&O tax reform plan
Published 2:30 pm Thursday, May 13, 2010
Washington Policy Center, a non-profit, non-partisan policy research organization in Washington state, has released a plan for replacing the state’s Business and Occupation tax.
The plan, co-authored by WPC’s Center for Government Reform Director Jason Mercier and Center for Small Business Director Carl Gipson, is a variation of the Texas Franchise Tax—a gross receipts margins tax based on total receipts.
WPC modeled the impacts of various replacement taxes. Not surprisingly, an income tax modeled the worst, causing the most economic distortions. With other options showing approximately the same impact, WPC turned its attention to meaningful reform based on sound principles of taxation. The result is a proposed Single Business Tax or a gross receipts margins tax that would be:
• Revenue neutral
• Treat all business owners equally by using one flat rate
• Eliminate loopholes and special treatment
• Simplify administration of the tax to reduce compliance costs for business.
This proposal would result in radical simplification of current business taxes by eliminating the confusing multiple rates on business activities, and by repealing the special interest tax credits and exemptions for some industries that have built up over the years. The Single Business Tax would be phased in over multiple years to allow employers and public officials time to adjust to the new system.
For years the small business community has asked for reform of the B&O tax. While the tax rates are low, Washington is one of only a small handful of states with this type of gross receipts tax, largely because other states shy away from levying taxes on unprofitable businesses. The fact is that B&O taxes are levied on all businesses, regardless of profitability, and the tax intentionally pyramids, meaning consumers end up paying higher prices and not even knowing it. For these reasons, WPC decided to look for a viable alternative.
“Last year Gov. Gregoire said the welcome mat is out for alternatives to the B&O tax,” Jason Mercier said. “We have taken her up on the offer and are presenting an alternative tax structure that is simple and treats all businesses the same.”
“Quite often an income tax is the sine qua non for discussing B&O tax reform,” Carl Gipson said. “But an income tax just shifts the burden as opposed to levying it equitably. Moreover, a personal income tax hurts businesses in the long run by reducing peoples’ purchasing power. The long-term costs outweigh any benefits.”
====
To read more, visit wwww.washingtonpolicy.org and www.washingtonpolicyblog.org
