Altering B&O to VAT is an OK way to go, Sunday, December 1, 2002

[published Seattle P-I, Sunday, December 1, 2002]

Altering B&O to VAT is an OK way to go

Thank you for Ted Van Dyk's Thursday column on the state's tax system and the upcoming Gates Commission report. The persistent call for a state income tax by well-meaning public-minded citizens is a non-starter. It is also superfluous if the state were to adopt the value-added tax that has been in discussion in the Gates Commission. An extremely simple, easily understood adjustment to the current B&O tax, just allowing the deduction of input costs, would immediately and completely alter its character from a gross sales tax to a value-added tax. You wouldn't even have to change the name.

The revised tax would need revised rates, of course, but it can be very simply shown that the new tax is assessed on income. Revenue minus inputs equals return to labor and profits. Labor and profit are identical to income from business activity. There is no need for a complex new system to collect from individuals in the state, because collection can and should be done through the current system. The taxed entities are identical.

How close is this to an income tax? Close enough that the feds would allow it to be deductible from the federal income tax (with some appropriate assertions by the state).

A state income tax would be largely redundant.Will the Gates Commission make this simple, sweeping, logical proposal? I hope so. Will the commission get bogged down in schemes to benefit business or property owners or reduce regressivity? I'm afraid so. Why mess around with another run at an income tax? We already have an income tax -- the federal tax, and it's no shining example of fairness or ease of filing.

The Gates Commission has worked hard, but its report is likely to be drowned in special interest analysis. The alteration of the B&O to a value-added tax base is a winner. We can eliminate a particularly egregious form of sales tax, shift the tax base to income and offer a bonus federal tax break to our citizens.

Let's do it.

Alan Harvey
Seattle