Los Angeles Business Journal

Stimulating Discussion

Reduction or phase-out of city’s gross receipts tax could determine future of business in Los Angeles. By Larry Palmer Monday, March 18, 2013

Proponents of reducing or eliminating the gross receipts tax suggest that Los Angeles would attract and nurture more businesses, creating more jobs and driving a stronger economic recovery. In addition, the business growth would generate more property tax and sales tax revenue, offsetting city losses from the tax.

That logic certainly holds water. But, as some critics point out, it’s not that simple. We lowered the gross receipts tax by 15 percent back in 2006, and questions about whether the cut promoted business growth – and if so, how much – still remain. Some say it directly impacted local business expansion, while others say that expansion was the result of broader external market forces.

Many politicians and pundits have positioned this year’s gross receipts tax debate as central to the future of the L.A. economy. But if you’re looking to this discussion for answers about what the future of the local economy holds, or about what local business growth is going to look like over the next decade, you won’t likely find them within the context of this issue alone. What makes determining the role of the business tax in local economic growth so difficult is our practical inability to study the issue in a vacuum.

The fact is that – though this conversation about what to do with the gross receipts tax is important – the fate of this tax is just one of a wide, unpredictable variety of factors that will determine how many businesses move here, how quickly those businesses grow and how L.A.’s broader economic landscape will change over the next few years.

Despite the disorienting barrage of competing policy ideas and debate that inevitably comes with an election year, it’s crucial to remember not to limit your perspective to a myopic view. Staying ahead of the curve means focusing not on singular issues, but on the way different factors fit together in context to shape the future of our local economy.

Larry Palmer is a financial adviser with the Private Wealth Management Division of Morgan Stanley in Los Angeles.

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