Tuesday, April 17, 2007

What's wrong with the GRT

The Reader's Harold Henderson offers U. of I. prof J. Fred Giertz's critique of the governor's proposed gross receipts tax:
[U]nder Blagojevich's gross receipts tax proposal small businesses who pay outside lawyers, accountants, and janitors would be subject to the tax on those services--but big businesses with their own in-house lawyers, accountants, and janitors would not. The exemption for firms with $2 million or less in yearly sales does little good; it's a loophole that would, for instance, allow "a four-partner law firm with annual receipts of $7.9 million" to escape the tax by becoming four independent practitioners sharing an office.
A gross receipts tax would also encourage Illinois businesses to economize by buying from out-of-state vendors. (Buy plants from an Illinois vendor who bought them from an Illinois grower and they're taxed twice.) This is bad news even if you don't care about buying locally: the best taxes don't distort economic activity beyond the minimum necessary.

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