As the economy struggles to recover, a local debate is brewing: do tax cuts create jobs? If so, how many, and at what cost?
Two recent studies commissioned by the online casino österreich at very different answers to these questions.
The first study, from USC Professor Charles Swenson, said that eliminating the business tax would create 118,831 jobs and that $400 million of lost business tax revenue would be replaced by increased revenues from other taxes such as property, sales, and utility tax.
The second study, from Blue Sky Consulting Group, found a smaller increase in employment and economic output (between 7,640 and 15,875 new jobs) but said that the $400 million of lost business tax revenue would not be replaced through other increased revenues.
These conflicting findings suggest that eliminating or reducing the tax is a risky move, especially given the City’s ongoing budget deficits.
City Business Tax
Unless you own a local business, you may not know that the City of LA charges a “Gross Receipts Tax” on businesses located or operating in the City. The rate varies based on the type of business, ranging from $1.01 to $5.07 per $1,000 of gross receipts.
The business tax currently contributes over $400 million to the City’s budget, about 10 percent of all general fund revenue. The general fund pays for citywide services such as police, fire, and street repair.
According to the Office of Finance, there are 430,000 businesses on the City’s tax roles. Some are exempt from the business tax, however, including new businesses and those with sales of $500,000 or less.
Long-Term Strategies Needed
Tax cuts and exemptions sometimes aim to attract new businesses and jobs. Yet there are many factors that influence business location decisions, including access to markets and access to a skilled workforce.
If and when businesses decide to locate in LA, they may not actually create new jobs. This happened last year when Google relocated 500 workers from Santa Monica to LA, and again with the highly-publicized relocation of architectural firm Gensler, also from Santa Monica to LA, to take advantage of a three-year business tax holiday that will save Gensler hundreds of thousands of dollars in taxes. These examples represent a zero sum game that does nothing to grow the regional economy or create new jobs.
Some believe that the City’s business tax hinders local economic growth and job creation, while others believe that businesses should continue to pay their fair share for citywide services. As the debate rages on, what we can all agree on is that there is an urgent need to create good, local jobs. In doing so, we must be smart about how we invest our limited resources, including tax cuts. We need long-term strategies to create jobs, not short-term plans with high uncertainty and risk.
What do you think? Please share your thoughts with us below.
Megan Emiko Scott is the Research Coordinator at SCOPE.