Replacing the Business and Occupation Tax with a Single Business Tax
Jason Mercier and Carl Gipson, May, 2010
A tax is defined as “a sum of money to be paid by people or business firms to a government, to be used for public purposes.” Taxes pay for important public services such as schools, roads, social work and much more. Beyond the revenue raised for government, taxes influence the daily decisions of individuals and businesses and they impose a substantial financial burden on citizens. The cost of taxes particularly affects small business owners, who do not have the resources large corporations have to manage the complexity of national, state and local tax regulations.
Policymakers often impose higher taxes on business owners because they think businesses somehow are not paying “their fair share.” In reality, however, businesses do not pay taxes at all. People pay taxes. The taxes elected officials impose on any business in a competitive marketplace are usually simply passed on to customers. In most cases, the more taxes officials make a business pay, the more they make people pay.
The way in which government officials impose a tax is as important as the amount collected. As nineteenth-century economist Henry George described it:
“The mode of taxation is, in fact, quite as important as the amount. As a small burden badly placed may distress a horse that could carry with ease a much larger one properly adjusted, so a people may be impoverished and their power of producing wealth destroyed by taxation, which, if levied in any other way, could be borne with ease.”
This study examines one of the most burdensome and unpopular taxes elected officials impose on the people of Washington, the Business and Occupation tax (B&O). This study describes the history and present administration of the B&O tax, and proposes a revenue-neutral alternative that would simplify the financial burden state lawmakers place on businesses and their customers.