"The BNRT’s far-reaching ramifications have not been fully addressed and should be carefully analyzed and considered by the Governor and the Legislature…. Instituting a new tax system and phasing out an old one needs careful oversight. There may be unforeseen consequences and dramatic shifts in the economy that could call into question the proposed pace of transition."
The above quotes are not from critics of the Commission on the 21st Century Economy report but from the majority authors of the report itself. That is something less than a ringing endorsement, and not useful for either bumper stickers or campaign ads. And it is probably the most forthright statement in the report regarding the Business Net Receipts Tax (BNRT). This tax reaches every transaction in the economy so everyone pays but it is incorporated into the price of the product or service, so consumers do not know how much tax they are paying. It is a tax designed for the benefit of government because it can raise large amounts of revenue at low rates all while hiding itself from the public.
The Commission does recommend that a technical body be convened at least during the transition to make sure that the BNRT is raising enough money to replace the old system. Unfortunately, they are not suggesting that if an unjust dislocation of the economy is created by the new tax that the new tax should be repealed. Their concern is focused solely on revenue and not tax justice.
They do raise several controversial issues, each of which alone could kill the proposal. For example, if the government is taxing a business’ net receipts, should labor costs be deducted? The BNRT purists say no. But this means that the business is paying a tax on all of its employees. If labor costs are to be deducted, then this becomes more of a tax on business profits like the current corporate income tax. Seems that the advocates of the BNRT want to tax more than profit; they also want to tax businesses that are losing money.
The Commission also recognizes that banks and other financial institutions are different than retailers and service providers. The BNRT, unless adjusted, could impose a huge tax increase on these types of businesses. Since most of them have recently been bailed out for their problems, it could be considered very bad timing to hit them with such a tax increase. They also point out that millions of businesses have various tax benefits such as carrying losses forward, credits, depreciation, and other deferred expenses which would all become worthless under a BNRT.
Again, the transition from the old, "bad" system to the new, unknown, hidden-tax system is going to nasty, brutish and short for a lot of business owners.