You believe19 there will be reductions, but you don't20 know?21
Yes. I mean, I25 539 12/1/10 - WHOLE - BILL 1006351 don't know about up and down, but after2 the first year, I don't think there would3 be much changes.4
If we focus5 on revenue neutrality and it's budget6 based, it has been adjusted on a7 year-by-year basis, then the rates could8 go up and down, and that's ridiculous.9
That's12 ridiculous to suggest that. It's good13 business tax reform policy. Now, if you14 want to say that it doesn't have to be15 revenue neutral, fine, but if we're going16 to sell this as revenue neutral and17 accept the fact that revenue neutrality18 is budget based, it means you have to19 tinker with the rates, and it literally20 means the rates could go up and down.21
All else equal, if25 540 12/1/10 - WHOLE - BILL 1006351 you put the constraint on that you want2 it revenue neutral, I think you suffer3 with that, that's true.4
And I think5 we agree that that's not a smart6 constraint to put on it --7
-- if it9 leads to rates going up and down?10 See, you can't have it both11 ways. You can't sell it as being revenue12 neutral without saying that the rates13 might go up and down, which is bad14 business tax reform policy.15
My two comments16 there is, I'm not necessarily arguing for17 this for revenue neutrality on this. I18 know it's part of the story here, but I19 think the tax -- the proposed swap,20 revenue neutral or not, is a very --21 would be a very, very good thing for22 Philadelphia. I also think that the23 changes after -- if you're phasing this24 in, the changes each year would be25 541 12/1/10 - WHOLE - BILL 1006351 really, really, really small.2
But that's3 the point I want to raise, is that either4 the aim is for it to be revenue neutral5 or it is not, and both are bad.6
Because if8 you want it to be revenue neutral, that9 means the rates potentially go up and10 down. And if you don't want it to be11 revenue neutral, this is the wrong time12 to do it.13
Well, I don't know14 if -- I understand what you're saying,15 but I'm not sure that the --16
I'm not sure that19 I weigh the rates going up and down as20 much, because I think the rates going up21 and down would be very small, and as I22 noted before, I actually think that the23 rate shifting will be reducing the rates24 because the base will be growing faster25 542 12/1/10 - WHOLE - BILL 1006351 than we had anticipated.2
But if7 there's a commitment to revenue8 neutrality, the rates could go up and9 down. If there's not a commitment to10 revenue neutrality, then it's fiscally11 irresponsible. It's one or the other.12
I hear what you're13 saying, but I don't agree with that being14 fiscally irresponsible. It's not15 fiscally ideal, but I don't call it16 irresponsible.17
It's not18 ideal.19 Am I still your favorite former20 employee?21
Absolutely.22 Somebody is shaking their head. The23 story, of course, is absolutely.24
Thank you,25 543 12/1/10 - WHOLE - BILL 1006351 Mr. Mullin.2 I have questions for Mr. Dubow.3
Mr. Dubow,5 does the Administration still support6 elimination of the gross receipts portion7 of the BPT?8
This is yes11 and no. It's more helpful.12 So does the Administration, as13 it stated, support the $100,000 exemption14 which would create elimination of the15 gross receipts for a majority of16 Philadelphia businesses?17
We support an21 exemption. A hundred thousand might be22 the right number. We'd like to kind of23 try to figure out what the right level24 is, but we support an exemption.25 544 12/1/10 - WHOLE - BILL 1006351
So will the2 Administration adopt a policy of gross3 receipts exemption as part of its4 business tax reform strategy for the5 future?6
Now, let me8 get to the questions -- one more question9 about that. How much does the $100,00010 exemption on gross receipts cost?11
By itself, without12 anything else in the bill, it's about $813 million.14
About $815 million. And so that's actually a16 decision we may be able to make sooner17 than later?18
Now, despite20 the $100,000 exemption on gross receipts,21 which I said before is the only reason22 why I co-sponsored the bill, does this23 bill raise taxes on any small businesses?24
I would say that25 545 12/1/10 - WHOLE - BILL 1006351 there are likely businesses, small2 businesses, that if they have -- and it3 depends how you define small businesses,4 but I think --5
I define6 small businesses as annual gross receipts7 of less than $1 million.8
Yeah. There would9 be some firms that's under a million10 dollars, depending on where their income11 was and where their level of receipts12 were, that could be losers under this13 bill.14
So the15 benefit to small businesses will not be16 only borne by large businesses; the17 benefit to small businesses will also18 become the burden of other small19 businesses?20
Despite the22 $100,000 exemption on gross receipts,23 does this bill raise taxes on any24 Philadelphia businesses?25 546 12/1/10 - WHOLE - BILL 1006351
So this tax3 shift is not really about business size4 or geography. This is not really about5 small businesses versus large businesses6 or Philadelphia businesses versus7 non-Philadelphia businesses. The truth8 of the matter is, the winners will9 benefit on the backs of some small10 businesses and the winners will benefit11 on the backs of some Philadelphia12 businesses based upon their industry type13 and their profit margin; is that correct?14
Thank you.17 So does this bill raise taxes on18 labor-intensive industries?19
And for the21 record, how many jobs do you think will22 be lost?23
There's no good24 analysis of how many jobs would be gained25 547 12/1/10 - WHOLE - BILL 1006351 or lost through the bill. There is an2 analysis by Professor Inman that said3 that the gross receipts change would cost4 75,000 jobs, and that's obviously an5 approximation. So I think the kind of6 underlying, if you want to call it,7 gamble in the discussion that you had8 before is that the net income reduction9 will create more than 75,000 jobs, and we10 haven't seen any evidence of that.11
And we've16 redefined revenue neutral as being budget17 based. So in terms of your current18 estimate on the best information you have19 right now, what does the bill cost?20
So next year you'd25 548 12/1/10 - WHOLE - BILL 1006351 have about a fifth of the reduction.2 You'd still be going against the current3 rates. So against the current rates, the4 full implementation would be about $235 million. So a fifth of that would6 probably be roughly about $4 million.7
So to the8 best of your knowledge and with the best9 information you have right now, this10 proposal costs $23 million in lost11 revenue to the City and 75,000 jobs to12 the City?13
It would be $2314 million by the fifth year if we weren't15 changing rates. The Five-Year Plan16 assumes some rate change, which already17 had some loss. So against the Five-Year18 Plan, it would be about 8 million in last19 year, but you'd be losing money each year20 as you got there, too.21
So it loses22 money, it loses jobs, to the best of your23 knowledge?24
Thank you.2 Thank you, Madam President.3 COUNCIL PRESIDENT VERNA:4 You're welcome.5 The Chair recognizes Councilman6 Jones.7
Could12 Mr. Mullin state whether he agrees or13 disagrees with Mr. Dubow on those14 questions?15 COUNCIL PRESIDENT VERNA:16 Mr. Mullin?17
The19 questions that Councilman Goode asked20 about the jobs and the cost, what's your21 position on that?22
Well, I would say23 that on the terms of the cost, I think --24
Point of25 550 12/1/10 - WHOLE - BILL 1006351 information.2
Point of7 information. I actually just wanted to8 clarify my question since you want him to9 respond to the question. So I want to10 clarify the question and ask the same11 question I asked Mr. Dubow.12
And so the15 question is, in terms of the best16 information you have now, the most17 up-to-date information, in terms of how18 the bill is currently constructed now,19 without amendments, is the bill revenue20 neutral or does it cost money, and is21 there any projection for job loss?22
How do I feel?23 What do I think of that based on the24 latest? I think that it is25 551 12/1/10 - WHOLE - BILL 1006351 effectively --2
We are3 actually asking what data do you have and4 what does the data say about actual --5 not interpretation of data, but actual6 data. What does the data say in terms of7 whether this -- actually, I'm going to8 use your word now -- possibly, whether9 this bill possibly loses money and jobs?10
I think it's11 possible, yes. I think it's highly12 unlikely. Our estimates are that it's13 revenue neutral based on 2008 there, but14 there's possible swing. And I think the15 estimates that we've both done, I think,16 are reasonable and I think that the17 Administration's numbers are reasonable.18 That $4 million a year phasing in, I19 agree wholeheartedly with Rob that that's20 a number there. My view, though, is that21 the net, as I said before, that the net22 supply side effect will be positive. I23 do not believe --24
But you have25 552 12/1/10 - WHOLE - BILL 1006351 no proof of that.2
-- without8 any growth?9 You can estimate that there10 might be growth. You can project there11 might be growth. You can assume there12 might be growth, but without growth and13 without immediate growth, there's a cost.14
Right. And what15 I'm saying is, assuming no growth and16 without any growth at all, our estimates17 were that it would be revenue neutral18 based on 2008. I, though, can see that19 it's very possible and I think the20 estimates that -- the lower estimates of21 the $20 million is very reasonable too22 looking out forward there, because our23 estimates that it's revenue neutral is24 not based on positive supply -- net25 553 12/1/10 - WHOLE - BILL 1006351 supply side effect there. It's based2 on -- the difference with our two -- it's3 roughly $10 million difference. We think4 that the net profits tax will be $105 million higher than the Administration,6 and we also think the impact of the7 alternatives for manufacturing, retailers8 and wholesalers will be slightly less --9 $10 million less than the Administration10 thinks. Both, I think, are very11 reasonable.12 I do not buy at all the $75,00013 number for gross receipts alone. I think14 that the number would be positive, but I15 have great concerns about that. And Bob16 Inman was my thesis advisor. He's one of17 the two people that got me in this world,18 and I love him forever on that. I19 disagree with his estimates on that20 there, but as was noted yesterday, those21 numbers assume no positive effect22 whatsoever.23 So is it possible there would24 be job loss? Yes, it is possible. I25 554 12/1/10 - WHOLE - BILL 1006351 think highly unlikely.2
Okay. I'm3 going to quickly concede that there's no4 need to debate anymore, at least from my5 part. Even if the numbers were close6 enough, which they're not, they still7 would be interpreted differently. And so8 clearly the question is whether we want9 to take a gamble or not from moving from10 a proven strategy to something that is11 not proven yet in times of economic12 downturn.13 I think that there's some good14 things that we can do that the15 Administration has committed to in terms16 of $100,000 exemption. I think we should17 continue discussion on this, but, of18 course, as I said before, I'm not19 prepared to vote for this as is, because20 I've done my own analysis of it, weighed21 both sides of it, and obviously am22 somewhere in the middle, but closer to23 the projection that I'm pretty certain24 the bill costs money and the bill costs25 555 12/1/10 - WHOLE - BILL 1006351 jobs in the short term, and I'd be2 willing to bet anything on that.3 Thank you, Madam President.4
Thank5 you.6 The Chair recognizes Councilman7 Jones.8
Thank you,9 Madam President.10 Steve, without a doubt, I am11 your favorite employee after these12 comments today.13
Well, I have16 a couple of questions. And I truly17 respect the people at this table. I want18 everyone to know that. I believe19 sometimes we can disagree, but I think20 this kind of discourse has proven one21 thing for sure for me, that tax reform22 and the debate about it is here to stay,23 no matter what the outcome, and I want to24 see if I can get both of you to agree on25 556 12/1/10 - WHOLE - BILL 1006351 one thing. Is there a need for tax2 reform?3
And do we9 agree at least on the $100,000 exemption10 is good for Philadelphia?11
Yeah. I think it's16 just the dollar amount. It may be17 $100,000. It may be the right amount, it18 may not, but we agree that an19 exemption --20
Is that a21 nod from all parties at the table or are22 some people --23 COMMISSIONER RICHARDSON: We24 agree.25 557 12/1/10 - WHOLE - BILL 1006351
So we have8 agreement on that.9 Is that enough for, no matter10 what the outcome of this legislation,11 that we will be at the table to kind of12 bring this forward or are our heels dug13 in to our original positions to the point14 where we're just not going to acknowledge15 that good ideas germinate from all kinds16 of places?17
I think that's a18 really good idea that did not come from19 the Administration and that we support.20
That's21 agreed across the board? Because all of22 you have a role in this, particularly the23 small business portion, because they're24 projected, some of them, as winners and25 558 12/1/10 - WHOLE - BILL 1006351 losers no matter how we do that.2 So we agree that that will3 happen no matter what? I'm4 specifically --5
-- looking8 at you, Mr. Dow. I see three yes's. Is9 that a yes?10
So that's13 unanimous. Okay.14 Can we go to the winners and15 losers list? Which I hate. I really16 hate the idea of winners and losers even17 if a shift does impact you one way or18 another. I think once we started19 labeling that, I mean, we were going down20 a bad course.21 But do you agree at least on22 who is affected one way or another? Do23 both of my experts both agree on that24 list or is there some deviation? You had25 559 12/1/10 - WHOLE - BILL 1006351 a list of analysis of winners and losers.2
You're talking3 about this list that shows by industry4 who would pay more taxes and who would5 pay less taxes?6
Yes. Is7 that an agreed list or is there some8 deviation there?9
I think the only10 place where there may be deviation is11 because of the -- I think the only place12 where there may be disagreement -- or13 it's actually not even disagreement, it's14 just not understanding yet -- is if the15 amendment on the construction industry16 goes in, what impact --17
I think18 that's a given by the sponsors of the19 bill that that would be something that's20 going to be amended.21
Point of24 information.25 560 12/1/10 - WHOLE - BILL 1006351
The2 Chair recognizes Councilwoman Sanchez for3 a point of information.4
I just5 want to clarify with or without this6 bill, it's a pyramid problem that I think7 the Administration recognizes needs to be8 corrected anyway, and it's an important9 piece.10
There is a pyramid13 problem. We do need to figure out how to14 address it.15
You know, I should18 comment on that, and I think the sponsors19 agree. I think we've actually agreed on20 a lot of things over time and kind of21 worked well together.22
You couldn't23 tell by me. I mean, really, I've been24 sitting through this for quite some time.25 561 12/1/10 - WHOLE - BILL 1006351 The agreement part is about this long in2 the testimony and then the disagreement3 is probably --4
Well, the5 disagreement part is about the impact on6 the economy, so that's pretty important.7
Okay. We'll8 agree on that.9 You stated in your testimony10 that there was no reliable data that11 could project job impact one way or12 another by this bill; is that correct?13
So we agree19 we don't know if it's going to have a20 negative or a positive job impact. And21 so the uncertainties, if I understood my22 colleague, is what is in question.23
Can I put a little24 more beef to that?25 562 12/1/10 - WHOLE - BILL 1006351
And I think that4 Mr. Mullin would agree with this. I5 think that we probably both agree that6 reducing the net income side will have a7 positive effect -- would have a positive8 effect on the economy and on jobs, and9 that increasing the gross receipts side10 would have a negative impact on the11 economy and on jobs, and where the12 disagreement is is what the netting of13 that is.14
Okay. No19 problem.20 If I understood your testimony21 correctly, that of the top 20 cities,22 we're still one of the only ones who uses23 a gross receipt tax method?24
I think that both25 563 12/1/10 - WHOLE - BILL 1006351 forms of tax, gross receipts and net2 income, are rare for large cities.3
What typically6 happens is, large cities get at7 businesses through the property tax, and8 they can differentiate their tax rates9 for businesses and residents. Because of10 the Uniformity Clause and the state11 Constitution, we can't do that. So12 that's one of the problems with our tax13 structure that we would need help from14 the state to correct. And I think if you15 look at what every group that studied16 taxes over time has said is that over17 time we should move more towards property18 tax, but because of the way the state19 system is set up, it's very hard to do20 that.21
So the22 75,000 job losses are nebulous. Somebody23 pulled that -- although they are the24 professorship, that might not be as25 564 12/1/10 - WHOLE - BILL 1006351 accurate or predictable? You gentlemen2 agree that that's not as predictable as3 one might --4
I think even5 Professor Inman would say he wouldn't6 want you to use that as an exact number,7 but I think he would also say that it's a8 good indicator of kind of the scale of9 what you would see, that there would be10 significant job loss from increasing the11 gross receipts and that that's a big12 problem.13
Let me ask14 this, and, again, I want to preempt this15 with all jobs are important to the people16 who have them, and I'm going to say that.17 If you are in that job, it is very18 important to you and your family and19 important to us as a city who derives tax20 revenues from it. But under economic21 theory, in almost an animal farm fashion,22 are some jobs more equal than others by23 way of -- manufacturing jobs actually24 create service sector jobs; is that true?25 565 12/1/10 - WHOLE - BILL 1006351 Both of you have been professors.2
I think it's3 manufacturing activities, service4 activities, different types of activities5 generate demand for other businesses6 there, but one of the big things to7 remember too is that paying people8 wherever they're working generates demand9 for a lot of the stuff that we've heard10 people talk about too, grocery shopping11 and neighborhood services.12
So if I13 manufacture product in China, that's14 going to generate other services where?15 In China. Or do you say --16
If you're taking a17 profit back and you live where you live18 and you're taking a profit, that will19 actually generate some demand for20 services from you spending.21
So to some22 degree, it is better to create those23 kinds of opportunities in Philadelphia or24 in the region at least so that some of25 566 12/1/10 - WHOLE - BILL 1006351 that synergy gets generated local?2
I guess I kind of5 would say that I'm not here to argue in6 favor of the net income tax, but my7 concern is what happens when you8 quadruple the gross receipts tax. So I'm9 not going to try to defend the net income10 tax.11
I just want12 on the record -- some things are on the13 record because they need to be on the14 record, and I just want to establish that15 we agree that Philadelphia first, not to16 violate any interstate commerce laws or17 anything like that, but it is truly18 better to get a business that is19 employing people here, creating synergy20 and other jobs and other sectors here21 than to do it somewhere else, and I think22 those are important goals as we start to23 bring forth the issue of tax reform.24 And then, finally, my comment25 567 12/1/10 - WHOLE - BILL 1006351 is that the only real loser is the people2 paying the wage tax here at the rate that3 they're paying it, and we're not4 really -- and I said this before and I'm5 saying it again today, is that I do need6 more analysis of what the job creation7 impacts are. And that's the most8 important single thing to me, because9 with that, everything else takes care of10 itself. And so I don't know who we need11 to try to figure that out, but as this12 debate goes on for reform, I'd like a13 little more impact analysis on that.14 All right? I love all of the15 jobs. I'm going to say it again. I love16 every job that we ever created from17 whatever sector, but I do think Philly18 first is where I'm going to always come19 down on on job creation. I spent my20 adult life generating jobs, tax ratables21 for this city, and I think that no matter22 what happens today, this is something23 that needs to be progressed further than24 just some of the attitudes and hardened25 568 12/1/10 - WHOLE - BILL 1006351 positions that have been developed, and2 I'm looking for all of us to come3 together and kind of do what's right for4 the region and the City.5
And I think another6 thing we agree on, that one of the7 difficulties in looking at the impact to8 this bill, at the jobs impact of the9 bill, is the lack of kind of good data on10 what changing the net income rate would11 mean. We would, I think, both love to be12 able to tell you that's what it means or13 here's kind of an indication of what it14 means, but that data is just not there.15
And I just16 want to say, Steve, the only reason17 Wilson went on the line of questioning he18 did is, all of those staff meetings we19 sat in together where you asked our20 opinion and really didn't want it, well,21 the reverse happened.22 Thank you, Madam Chair.23
The Chair24 recognizes Councilwoman Sanchez.25 569 12/1/10 - WHOLE - BILL 1006351
I just2 want to take this opportunity to make3 this point. It is going to be very4 subjective to come up with an employment5 analysis as requested because of what6 both Rob and Steve have said, the lack of7 jurisdictions comparable to ours that8 have both of these taxes.9 So I don't want to set up a10 false expectation about our ability to11 create a matrix that doesn't exist or may12 not exist because there's not apples to13 apples, and that that will be pretty14 subjective. And I think both -- as we've15 gone back and forth, it will always weigh16 in on what we believe the market shift17 and the behavior would be. But I don't18 want to set up a false expectation,19 because no matter how long we have this20 conversation, it's going to be almost21 impossible to gather.22
That's actually23 what I was trying to say, but you said it24 much better. Thank you.25 570 12/1/10 - WHOLE - BILL 1006351
I just5 have a question in terms of who benefits6 and who might not benefit instead of7 saying winners and losers. The whole8 field of technology, would they be9 winners or would they be losers in terms10 of -- we're talking about this bill11 benefiting manufacturing and retailers.12 Where does the field of technology, which13 is now the going employment market in14 this country, where do they fall?15
Councilwoman, my16 response to that is if we are talking17 about sort of growing firms, technology18 firms, in either start-ups or ones that19 are in sort of the earliest phases, it's20 my belief that this bill would be21 extremely helpful to them, because they22 are exactly the businesses that you lose23 money early on and you gain -- and you24 always forecast that you're going to be25 571 12/1/10 - WHOLE - BILL 1006351 earning profits afterwards or else you2 wouldn't be in the business there, and3 those are the ones that will be looking4 and saying, When we get up on our feet,5 start making money, that's oftentimes6 when they say, Okay, now it's time to7 exit the City, and I think this would8 decrease the reason to do that.9
The Revenue10 Department analysis shows that the11 computer services would see their tax12 liability increase by roughly $600,000.13 Telecommunications would see their14 liability go up by about 1.3 million. So15 those two portions of the industry would16 see their liability going up. Management17 and technical consulting, which may also18 include similar types of technology, you19 would see their liability go down by20 about 1.3. So it's kind of mixed. And,21 again, within those industries, that will22 vary by business too, by firm.23
Okay. The24 Chair recognizes Councilman Greenlee.25 572 12/1/10 - WHOLE - BILL 1006351
Thank2 you, Madam Chair.3 Just two quick things. First,4 Mr. Dubow, just generally, I know towards5 the end of your testimony you talk about6 additional concerns, and I know through7 your testimony you talked about some of8 the specific concerns you have about the9 bill, but you say another major concern10 for the Administration is the businesses11 will see the tax structures unpredictable12 and subject to change. I guess in13 fairness, is that really a reason to be14 against the bill, though, that it's a15 change? Because we heard a lot of people16 yesterday say they don't like the way17 things are going now.18
Right. And I'm19 actually not -- I'm glad you asked that,20 because the fact that changing the21 business structure, business tax22 structure, in itself is not a bad thing.23 It could be a really good thing. What24 worries us about it is that so many25 573 12/1/10 - WHOLE - BILL 1006351 people we contacted last week didn't know2 this was happening, and having the tax3 change happen at a time when people4 aren't really aware of the debate is5 something that we think is a concern.6 So we think changing the tax7 structure makes sense. There just needs8 to be kind of a process that we make sure9 is inclusive.10
So your11 concern is more the awareness than just12 the change in and of itself?13
All15 right. Thanks.16 And, Mr. Mullin, just on -- I17 know we've kicked around the whole job18 impact thing, and Councilwoman Sanchez is19 right, we'll probably never necessarily20 get exactly what numbers we're at or who21 will be impacted exactly, but I know it22 was talked about a lot yesterday -- I23 know you were here -- about that some of24 the companies, corporations that will be,25 574 12/1/10 - WHOLE - BILL 1006351 quote/unquote, losers -- and I don't like2 that term either -- but employ a lot of3 blue-collar, maybe just high school4 educated people, that they will -- they5 could really be negatively impacted, that6 type of -- and they're Philadelphians.7 Example, the hotels, and I'm not saying8 their numbers are right, but they threw9 out 85 percent of their employees are10 Philadelphians. A lot of them are lower11 educated, that kind of thing.12 Have you looked at that13 specifically? Do you have a comment on14 that?15
With the latter,16 yeah, I do have a comment. Looking at it17 specifically, those are the types of18 firms that I was mentioning. The19 industries that we've been talking about,20 the types of firms we've been talking21 about, their fortunes are going to be22 determined by demand, not by a very small23 increase in their cost. They've got all24 kinds of cost factors, all these25 575 12/1/10 - WHOLE - BILL 1006351 businesses are in. They're trying their2 darnedest to compete and compete3 aggressively here in this market. By the4 way, that's a good thing for Philadelphia5 citizens, that they're doing that, both6 inside and outside here. But the7 salvation for these businesses or their8 growth is going to ultimately be9 determined by demand. And you'll hear10 all these industries say, We need jobs,11 jobs, jobs. We need businesses,12 businesses, businesses. That's the13 reason why I think this proposal stands14 the best possible -- the best possible15 thing that will lead to -- given --16 there's a lot of other things you could17 do, but the best possible thing, given18 the constraints and everything like that,19 to generate demand. I would really find20 it very hard to believe that you would21 find any type of significant employment22 reduction, any type of -- Councilman23 Goode was talking about expansions, the24 hotel industry with expansions and things25 576 12/1/10 - WHOLE - BILL 1006351 like that. What's going to drive the2 hotel industry expansion is demand3 based --4
And income12 comes from a combination of cost and13 competitiveness?14
So if you16 raise costs through taxes and compromise17 competitiveness, that impacts demand as18 well; is that not true?19
Okay. The21 demand is not some isolated thing in22 terms of whether people still want to23 come to hotels and book conventions,24 things of that sort. It's based upon25 577 12/1/10 - WHOLE - BILL 1006351 pricing and competitiveness and by taxing2 industry, and by deciding to quadruple3 the tax on an industry affects demand.4
Right. And my5 point is, the tax rates that we're6 talking about here are extremely small7 and would not influence the supply curve8 at all.9
Whether an10 industry loses jobs is based upon demand,11 but demand is affected by costs and12 competitiveness and impacted by13 quadrupling of the gross receipts tax.14
Actually, they're15 both -- those are two independent --16 supply and demand are completely17 independent. Where they meet is what18 happens, and I'm talking about shifting19 the demand curve to the right.20
But the21 competitiveness -- what it comes down to22 is, the income is based upon whether23 people want to come here to conventions,24 whether people think this is a good place25 578 12/1/10 - WHOLE - BILL 1006351 to come to conventions, whether we can2 build the hotel rooms, and3 competitiveness has a lot to do with a4 decision to quadruple the gross receipts5 tax and actually raise taxes on that6 industry. Demand is not completely7 separate and isolated from that.8
I'll agree with9 one thing. I'll note, I do agree that10 that is a factor. I think it's an11 extremely small factor. I think the big12 picture here factor for hotel expansion13 will be the state of the financing14 industry. When everybody is ready to15 pour money back into the hotel world, I16 think the Convention Center expansion, I17 think the efforts of the City, the18 Administration and Council here will be19 very, very positive in that, and I20 think -- I see a very positive outlook21 for the hotel and tourism industry.22
And I23 just used hotel as an example. I think24 there's other -- the bigger companies25 579 12/1/10 - WHOLE - BILL 1006351 that would have their -- be affected by2 the increase in gross receipts. I was3 just using the hotels because they gave4 an example of their type of employee.5 So you -- not trying to put6 words in your mouth, but you think that7 that impact is exaggerated? Would that8 be a fair way to say it?9
Well, it was said10 about one percent. I think that the11 impact, which is effectively less than12 three-tenths or four-tenths of a percent13 of revenues, is a very, very small factor14 and would be swamped by the demand impact15 of greater income.16 COUNCILMAN GREENLEE:17 Mr. Dubow, could I just ask your opinion18 on that?19
Sure. What we've20 heard from businesses is that they look21 at how much their costs will go up. So22 even if $300,000 winds up being a small23 percent of their overall revenue, they24 still have that cost and they'll still25 580 12/1/10 - WHOLE - BILL 1006351 look for ways to offset it, and one of2 the ways they may offset it is by hiring3 fewer people.4
So as5 Councilman Jones was looking for6 agreement, this is certainly one place7 where you disagree, right?8
Right. This is the9 impact on the economy part where we don't10 agree.11
Thank you.15 The Chair recognizes Councilman16 Green.17
Thank you,18 Madam Chair.19 Good afternoon. I've enjoyed20 listening to you both and am enjoying the21 very respectful dialogue that we're22 having here today. I wonder if I could23 just ask -- change the tone of this24 discussion. I was wondering if you could25 581 12/1/10 - WHOLE - BILL 1006351 tell us how much businesses under a2 $100,000 pay in gross receipts today and3 how much they pay in net income today and4 how many of those businesses exist?5 COMMISSIONER RICHARDSON: We6 don't have the information with us today,7 but we can provide it to you.8
Well, I9 fortunately have it right here. I10 believe this is information that Econsult11 has shared with Revenue. It's 200812 actual gross receipts tax under $100,000,13 filers, is million 8. Net income from14 these same filers is 20 million 95,000.15 So when we are looking at16 creating an exemption for the first17 100,000 for new business -- or for up to18 and including 100k, it really doesn't19 address most of their tax liability. It20 addresses about three and a half percent21 of their tax liability. So just by22 reducing the first 100,000 -- by23 exempting the first $100,000 for people24 in that category, does it make any sense25 582 12/1/10 - WHOLE - BILL 1006351 to do that in the context of leaving in2 place a net income tax?3
Yes. I mean,4 because they still get a benefit from it5 of $1.8 million. That liability would go6 away.7
In the8 aggregate, they would have a tax9 reduction of three and a half percent.10
I think if you ask15 the firms whether they would like to have16 that reduction, I think they would say17 yes.18
If you ask19 them if they'd rather have that reduction20 or have no tax, so if you said, Okay, you21 have two choices, is it possible that if22 they said -- Okay. You have two choices.23 One, we're going to change the tax24 structure so you pay 96 percent of what25 583 12/1/10 - WHOLE - BILL 1006351 you used to pay, and the other is, we're2 going to change the tax structure so you3 pay nothing, which do you think the4 businesses would choose?5
I think any firm6 would say, I'd rather not pay any taxes,7 but we need actually to collect taxes for8 a whole variety of reasons.9
I understand10 that, but we're not really giving any11 kind of serious benefit to anybody12 eliminating gross receipts and leaving in13 place net income. If you look at the14 next level of category, it's 100,000 to15 250,000, another very small segment,16 you'd only be giving people -- you'd be17 giving people an aggregate, maybe six,18 seven, eight percent tax reduction,19 instead of an aggregate -- excuse me for20 a second -- almost 50 percent tax21 reduction.22 So the impact on small23 businesses -- would you agree with this24 statement: The impact on small25 584 12/1/10 - WHOLE - BILL 1006351 businesses of a $100,000 exemption for2 gross receipts, because you can't exempt3 it for net income, exemption for gross4 receipts for businesses under 250,000 is5 negligible compared to the relief that6 would be provided under our current7 proposal?8
I would agree based9 on these numbers if they're accurate that10 it's smaller. I wouldn't agree that it's11 negligible.12
Would you13 agree that it's 20 percent less benefit14 at least, that it's 20 percent of the15 benefit we're providing to small16 businesses?17
I mean, if this is18 right -- and I'd have to actually see19 what the benefit is for the firms above20 100,000 -- it's clearly a smaller21 percent.22
Right.23 Okay. So small businesses will not be24 greatly impacted. The relief that they25 585 12/1/10 - WHOLE - BILL 1006351 are getting under our bill that was on2 the chart over there yesterday would not3 be -- it's apples and oranges in terms of4 the relief that small businesses get5 under our proposal.6
They would still be7 getting millions of dollars of relief,8 which is significant.9