Should Los Angeles Get Rid of the Business Tax?

Depending on your perspective Los Angeles' gross receipts tax on businesses either provides much needed revenue -- to the tune of $425 million per year -- or harms economic growth. Last week the City Council's Jobs and Business Development Committee suggested it is the latter. Specifically, the committee asked the city to study halting the tax for new businesses or eliminating it all together. The tax is essentially a tax on the revenue that businesses generate. The tax ranges from about $1 per $1,000 to $5 per $1,000.

City Council President Eric Garcetti and Chairman of the Business Tax Advisory Committee Lloyd Greif have worried that the tax will keep new businesses away and prevent existing businesses from expanding. Greif points to the fact that over the last ten years Los Angeles has lost 165,000 jobs but the population has grown by 800,000. The BTAC voted unanimously to ask the city to eliminate the tax. Bill Allen, chief executive of the Los Angeles County Economic Development corporation is making a similar push to eliminate the tax, saying it contributes to the city's lack of job creation.

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The city has already significantly scaled back the gross receipts tax. For instance, the city exempted certain small businesses and halted the tax for new companies. In addition, while the tax used to apply to 56 categories, it now covers only eight.

Will the city recoup its $425 million in lost revenue? Perhaps. A study by USC Professor Charles Swenson demonstrates that the loss in revenue will be offset by increases in other tax revenue, due to the creation of new jobs. The study suggests that in a worst case scenario the elimination of the tax will bring in $25 million in increased revenue, and in a best case scenario could bring in $321 million. Is this realistic or wishful thinking?

It is past time to ditch the tax if it truly costs more than it brings in. This is no time to make it cumbersome or costly to do business in the City of Angels. It is time to fly a flag over downtown Los Angeles that reads, "Job Creators Welcome."

Jessica Levinson writes about the intersection of law and government in Los Angeles every week. She is a Visiting Professor at Loyola Law School.

The photo used on this post is by Flickr user hall.chris25. It was used under a Creative Commons License.

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