Monday, May 7, 2007

Who’s Spinning a Tax Tale?

It is interesting how the opponents of the gross receipts tax have shifted the argument once their first charges proved to be untenable.

Remember the salvos? The GRT will be “devastating to Illinois employers.” “The tax has hurt the economy in every state where it has been implemented.” “It drives businesses out of state.”

We pointed out that there is no evidence to support those charges. Of the three states that have had gross receipts taxes for a long time, Washington, Hawaii and Delaware, the economies in two, Washington and Delaware, have, over the past 20 years, grown faster than the national economies.

And the business leaders in Ohio and Texas supported the gross receipts tax because the existing tax structure no longer fit with the underlying economy. The Ohio Business Roundtable said, “This new tax does not penalize job creation and investment, and also encourages participation in the global marketplace.” The Texas Economic Development Council called the gross receipts tax, “a fair business tax that closes loopholes and provides improvements to the funding for education.”

So we got past the first hurdle. The tax by itself does not devastate the economy.

Now some say we are spinning our tale because we have pointed to Texas and Ohio as examples of states that have recently passed gross receipts taxes. And they explain away the absence of any negative effect from Washington’s gross receipts tax by attributing that state’s economic success to either not having an income tax, or having no competition since it is bordered only by the Pacific, Canada, Oregon and Idaho.

They should just accept the fact that there is no credible evidence that a state gross receipts tax causes the economic sky to fall.

There are a number of legitimate questions. Is the gross receipts tax an appropriate tax to use? Is the overall size of the tax increase reasonable? Will the proposed expenditures be beneficial? Let’s just be clear about which question is being addressed.

Eight states, Washington, Delaware, Hawaii, Kentucky, Texas, Ohio, New Mexico and Arizona, have some form of a gross receipts tax. New Hampshire has a Value Added Tax. All are different, with different rates, different bases, different exemptions. The rest of the tax structure in each of the states is also substantially different. None of that has ever been the issue.

I stand by the arguments I have consistently made.

1) There is no evidence that the gross receipts tax is “devastating” to business.

2) The three states that have recently enacted a gross receipts tax did so largely because existing business taxes did not extend to significant sectors of the economy, and in the cases of Texas and Ohio did so with the support of business groups.

3) In today’s economy, the gross receipts tax is a better option for Illinois than any of the proposed alternatives.

4) Illinois is historically a low tax state, and if the Governor’s proposal is enacted, Illinois will still be in the bottom half of all states in state and local revenues (taxes, fees and interest) collected per $1000 of personal income, and below all but one of our neighboring states.

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