Reform and Restructure the B&O Tax --->Into a universal flat rate enterprise tax
The current B&O tax is broken. It is the lame third leg of the state’s tax structure.
Altering its form could
· Benefit small business
· Make the tax simpler and fairer
· Allow it to be extended to the government sector
· Create a robust third leg to the state’s tax structure
The reformed tax could completely fill the budget hole -- and there are no other practical alternatives. There are no other good options. The sales tax is effectively maxed out. The property tax is off the table. Sin taxes, and special-purpose taxes and fees are nickels and dimes when we need tens and twenties.
By allowing private enterprises to deduct the cost of their purchased inputs, a single flat-rate B&O could be produced. This new base of accounting for the B&O is transferrable to government and nonprofits, and could be a universal flat rate tax that could produce sturdy revenues from a very low base. In the same stroke, it eliminates massive unfairness in the way the B&O is calculated and collected.
For private business, the tax would have a base of compensation to labor, profits and retained earnings. This is exactly equivalent to income – worker, owner and business.
Government produces “public goods,” not “private goods.” The value of public goods is not a market value. They are valued at cost. (Market value would be much higher.) Since there are no profits (nor retained earnings), the proxy for value added then becomes compensation of employees. Again, this is exactly equivalent to income.
If a revenue neutral reformed B&O were found to have a rate of 2%, the revenue simply from its extension to the public sector would be around $600-$800 million.
The current B&O is not a good tax
- It is not fair, treating different business categories, sizes and profiles with different nominal and effective tax rates.
- Burdensome in down times, since it is not levied on a measure of ability pay.
- Needlessly complex
- Levied only on private businesses
The restructured B&O is a good tax
· The base is sound and sturdy, based on ability to pay and not as variable as current taxes.
· The rate is low, making avoidance impractical
THIS REFORM WOULD MAKE A TRULY UNIVERSAL BUSINESS AND OCCUPATION TAX
