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Sunday, May 28, 2023

Mayoral Candidates Differ on Approaches to Tax Reform

Mayoral Candidates Differ on Approaches to Tax Reform By BRAD SMITH Staff Reporter The four major declared candidates in Los Angeles’ mayoral race all agree on one thing regarding the city’s business tax: it is too high, and is driving businesses and jobs to surrounding cities with lower rates. After that, opinions differ. “Two things we hear from business is we need some sort of break because we have the highest rate in the region,” said Councilman Bernard Parks, who will be on the March 8 primary ballot along with incumbent Mayor James Hahn, former Assembly Speaker Bob Hertzberg, and state Sen. Richard Alarcon. “And the other thing we hear is there needs to be a concentration on those who don’t pay their taxes because that will generate more funds,” said Parks, a former Los Angeles Police chief. “But I don’t know if we can make the decision (to reduce the tax) unless we are assured we’re not going to make a five, 10, or 15 percent cut and not have any revenue to replace it.” Since the beginning of the year, the council, the mayor, and a citizen’s advisory panel have made a series of proposals dealing with lowering the city’s business tax, which currently raises about $380 million annually for Los Angeles’ general fund budget. The city’s total budget is $5.2 billion annually, but much of that spending is specified for non-general fund uses. The general fund pays for police, fire protection, parks, libraries, and similar services. All the parties involved in the issue have publicly embraced an Oct. 31 deadline for a council vote on a plan. The proposals have generally included fewer brackets and tax categories (from almost 60 to five), a small flat fee or no tax at all on very small businesses, exemptions for some industries, and an overall reduction in business taxes by fixed percentages over a multi-year period. The proposal originally made by the council’s ad hoc committee on the issue was for a 25 percent reduction over five years, which would reduce the business tax collected by the city by $90 million from 2006-2010. The proposal made by the appointed citizen’s committee, known as the Business Tax Advisory Committee, or BTAC, would reduce the tax by 15 percent over three years, which would reduce business tax revenues by $54 million. In both cases, the expectation is that reforms and stepped-up enforcement would lead to increased compliance by business owners; currently, about 30 percent of businesses in the city are scofflaws. Increased compliance, along with an improving economy, should result in enough revenue to fill the hole left in the general fund budget, according to city officials. Flat-tax proposal In addition, there have been proposals that small businesses that report $100,000 or less in gross receipts would pay a $145 flat tax. The mayor has countered with a plan that would exempt such businesses from the tax entirely, which has since been adopted by the BTAC and the City Council committee. “That would eliminate the business tax on 56 percent of the businesses in Los Angeles,” Hahn said. “We have made a number of reforms and I don’t think we are done yet, but we are going to get it done by this fall.” Hahn, in Sacramento last week to lobby against planned reductions in the state’s 2004 budget for city governments, said the final terms of the local tax legislation will balance the needs of business and the city’s budget. “I think you are going to see some more reforms coming about,” Hahn said. “We are trying to hit the right balance of having a revenue base that provides all the services everyone expects and to have a business tax that is clear and fair.” Hahn’s opponents differ somewhat in their preferences, but generally favor a mix of provisions from the mayor’s proposal and the council plan. Alarcon and Hertzberg, for example, both said they support the elimination of the business tax on gross receipts of up to $100,000, but Alarcon is willing to go beyond that. He is supportive of a flat rate for business in the $100,000 to $150,000 or even $200,000 range. Alarcon also supports a 15 percent rate reduction over three years, but would hold off on reductions in the fourth and fifth years. “That might further reduce the compliance problem, especially for businesses in the middle range,” the senator said. “The key factor would be the compliance rate.” Alarcon also says that if the simplified structure results in more that $385 million in revenue, any higher amount should be rebated. Hertzberg generally agrees, but wants to see additional study of the impact on the general fund of the Council’s 25 percent rate reduction. “It is hard to tell where the council’s proposal ends and the mayor’s starts,” Hertzberg said. “But we certainly want to send the signal that Los Angeles is business friendly.” Outside consultant proposed Parks has similar concerns about the impact on city services. He wants an outside consultant, preferably from academia, to review the proposals. “I do believe there is a need for tax relief for business,” Parks said. “But one part I have not been able to decipher, after looking at all the plans, is how does all the money get replaced?” Hertzberg said the council proposal, known as Greuel-Garcetti after its sponsors, members Wendy Greuel and Eric Garcetti, makes it clear the city is serious about the issue. “Our job in government is to do everything in our power to protect our businesses, so I’m very happy about the Greuel-Garcetti plan,” he said. “But this is something the mayor promised to do when he was running for office: why has it taken so long?” Hahn said the criticism is misplaced. “We have made more progress on business tax reform during my three years in office than either of the two previous mayors, so I don’t know what they’re talking about,” he said. “This is a top priority of mine.” Councilwoman Wendy Greuel, who has been deeply involved in the effort to restructure the tax, said the candidates’ interest is refreshing. “A year ago, people’s eyes glazed over .” Greuel said. “Without naming names, we have had a couple of candidates call and ask `what is it, and what’s the difference between what you’re doing and what the mayor is doing?’ it is better late than never.”

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