Kristin McQueary writes a pretty good column on the Gross Receipts Tax today.
What has been surprising is the lack of outrage over the tax breaks, loopholes and stunts big businesses have employed for years to avoid paying corporate income taxes — not to mention the tax burden they avoid through the growing use of economic incentives extended by municipal governments (sales tax rebates and tax increment financing districts) as well as property tax reductions through a county and state appeals process navigated by their well-schooled attorneys.
It’s easy to be swayed by the television commercials and apocalyptic bravado about how a gross receipts tax will trickle down to you and me. Maybe it will. What tax doesn’t?
She also discusses that Blagojevich’s administration tried to cut down on loopholes, but it didn’t work.
Reasonable enough, but the problem with the GRT is that it isn’t progressive as a tax and is not neutral as to the businesses hurt most and hurt least. Hi margin low volume businesses get a pretty good deal under the tax because their profit is obtained by relatively low sales. High volume low margin businesses do very poorly because they have to sell a lot to make much of a profit and this kind of across the board tax hits them hard.
To make matters worse, the stores poorer and lower middle class folks tend to shop at are high volume relatively low margin stores from grocery stores to drug stores to many big box stores. In contrast, the high margin low volume types of sales tend to be items that are more in the luxury category.
I’m all for closing tax breaks that aren’t necessary and even an increase in taxes to put the state on reasonable financial footing, but this tax is exactly the wrong way to do it. Already the flat tax on incomes hurts the poor in this state more than the rich, this will simply exacerbate that effect.
Focusing a tax upon profit would be a far more fair way to tax businesses and it has the benefit of treating businesses fairly because it isn’t based upon sales, but on the profit and ability to pay and still have a marginal impact upon the business’s bottom line other than on those that are above operating costs.
The problem with taxing profit is that businesses determine what their profits are. So the self-owned or chapter S corporation can decide to pay themselves then declare their profits, of course in that case the individual pays personal income tax or they can decide to reimport parts and buy things from other arms of their company etc. in order to mask profits.
I don’t think the poor are going to get hit any harder by this than the more prosperous. After all, a lot of fairly well off people shop at big box stores too and they can afford to buy a lot more stuff at the big box places.
There are a lot of loopholes to be closed before we hit anyone with a SEVEN BILLION dollar tax hit.
Remember, also, gross receipts taxes are cumulative, meaning that when Siemens sells Motorola a connector, the tax is applied to it there. When Motorola sells the completed circuit board to Sunstrand they also pay the tax (even on the connector already taxed). When Sunstrand sells the completed controller to Caterpillar, they get to pay the tax on all of it. Then, the end buyer gets to pay back all of those taxes as part of their price.
However, if Siemens instead supplies the connector from their Indian plant,then they can get out of that tax and Motorola can supply the board from their Chinese plant (which makes much the same thing), and avoid the tax.
But don’t tell Blago that, he doesn’t believe anyone would leave over a little tax.