BNRT–Not a European Vacation

Assemblymember and Budget Chair Noreen Evans has been commenting
on the “work” of the COTCE Commission which was created to try to deal
with California’s revenue creation issues that have been blamed for the
annual budget problems here in California.
While there is
clearly room for improvement in how we collect the revenues necessary
to invest in our state and its future, the suggestions by Gerald Parsky
and the Governor who appointed him to head this work are really a
subterfuge for giving more tax relief to the wealthiest Californians at
the expense of the rest of us.

We know that
the real answers call for closing billions in tax loopholes for the
rich and large corporations, correcting a split roll for real estate
taxes so that big commercial properties don’t short=change our
communities and realizing that as a 21st century economy,we’re
primarily a service-based and technology-based economy where revenues
should be coming from services and internet sales. 

Here are
Assemblymember Evans observations on the half-baked proposal by Parsky
and his crew to misdirect our attention away from what we should be
considering and lessening the responsibilities on those who have
benefited the most and stand to gain the most from this ill-conceived
and transparent attempt to give the rich even more.” — HBJ

BNRT–Not a European Vacation

by Assemblymember and Budget Chair Noreen Evans

The proposal by the Commission on the 21st Century Economy (COTCE–rhymes with “gotcha”) to scrap the California tax system and replace it with the Business Net Receipts Tax (BNRT) is riddled with problems and full of questions without answers. It begs
the question–how stupid do they think we really are?

Few people understand how the BNRT works and no one knows how it will impact 
California. Some compare the BNRT with the European Union’s Value Added Tax (VAT). That’s like saying the Oakland Raiders and Manchester United both play football.

the surface, both tax systems sound similar. The proposed BNRT would be
imposed as a percentage of a business’ gross receipts from the sale of
goods and services, minus the business’ purchases of goods and services
from other businesses (which have already been taxed). A VAT is a tax
on manufacturers at each stage of production on the amount of value an
additional producer adds to a product. This cost is typically passed on
to the consumer in the end.

A key distinction between the VAT and BNRT lies in the fact that California is a state, not a sovereign nation. So, the BNRT lacks a critical element of Europe‘s VAT–the border adjustment. The United States Constitution prevents California from
implementing a border adjustment because that interferes with
interstate commerce, which can only be regulated by the federal

This creates an enormous problem for California businesses. Europe‘s VAT system ensures that products made in Europe are taxed at the same rate as products made abroad by placing the VAT on products entering Europe and rebating the tax for those products leaving Europe. However, under the United States Constitution, businesses without a nexus to California cannot be taxed by California. Thus, California products will be subject to the BNRT while products made elsewhere will enjoy a competitive tax advantage.

The BNRT’s problems don’t end there. Most importantly, the BNRT reduces incentives to create jobs in California. 

Commission’s proposal provides a tax deduction for payments to
independent contractors, but not for employee wages. It’s almost as if
the Commission was trying to find a way to punish 
California workers. Under this proposal, California businesses would be taxed for keeping employees on their payroll. The logical result is that Californiabusinesses will turn to out-of-state labor contractors who hire workers in California and then contract them out to California businesses. Thus, Californians will have even less stable employment and we would see fewer jobs created here.

Adopting the untested BNRT proposal requires blind faith in the Commission’s promises that it will somehow benefit California,
despite all the evidence to the contrary. It’s like quitting your dull,
but reliable job because a late night commercial promises you can make
$100,000 working from home.

Who benefits from this proposal? California workers don’t benefit. California‘s small businesses don’t benefit. California corporations don’t benefit. Any benefit to California‘s
taxpayers is entirely speculative. The only certain beneficiaries from
this proposal are out-of-state businesses, large, multi-state or
multi-national businesses, and out-of-state labor contractors. Was this
really the purpose of the Commission on the 21st Century Economy?

Many economists love Europe‘s
VAT and extol its benefits to the European economy. But don’t be
tricked into believing that the proposed BNRT will bring these or
similar benefits to 
California. The greatest lessons Californians can learn from Europe regarding the BNRT are the lessons learned the hard way in the casinos of Monte Carlo.