---
[ ARCHIVE ](https://ded2209.inmotionhosting.com/~citywa9/archive)
# LA’s Business Tax: That Voodoo That You Do
November 10 2011
Written by James Elmendorf.
[](https://www.addtoany.com/share)
OUT OF THE FRYING PAN - ’m not in the habit of critiquing economic analytical methods in obscure [reports](http://clkrep.lacity.org/onlinedocs/2009/09-1914-s6_pc_8-3-11a.pdf)—really, I’m not—but there’s something about this one that grates. City Hall’s bending over backward to pander (or at least, they were) [\[link\]](http://blogs.laweekly.com/informer/2011/10/bill_rosendahl_occupy_la_move.php) to the Occupy LA people outside its door, and at the same time considering a tax break that will potentially further devastate the city budget.
The report in question is an analysis by USC Accounting Professor Charles Swenson, and the tax break is the proposed elimination of the city’s business tax. Swenson argues that if the city does so, forgoing $424 million in revenues, it will actually generate 131,000 jobs and generate an additional $263 million above and beyond what the business tax now brings in.
How this happens—other than voodoo – is entirely unclear from the report. Swenson simply presents a series of tables with a series of assertions, without showing a formula or basis for any of them. This is not the first time Swenson’s been [criticized ](http://www.cbpp.org/cms/index.cfm?fa=view&id=3297)for such practices and, as in that instance, Swenson did not respond to my email request that he share his math magic.
Earlier in the report, however, we can see the problem with his underlying logic. Swenson looks at two previous reforms of the business tax (there’ve been five in 10 years, the most recent occurring just last year), and makes the case that one of them created 20,000 direct and indirect jobs.
The first reform was back in 2001. This so-called “tax holiday” exempted new businesses for the first two years of their existence, if they had under $500,000 in revenue. In the previous year, all companies with under $500,000 in revenue paid an average of $302 in taxes each year.
Since the holiday only impacted start-ups, generally on the lower end in revenue, the savings for the average new company was probably less, but $302 represents the ceiling of potential savings.
If this program created jobs in the way Swenson claims, it suggests that all many businesses needed to hire someone was to save $300 in taxes for two years; apparently they already had the $30-60,000 a year it might take to pay wages, benefits, and other costs, and were just a little short. .
A second problem with the logic should be evident—last year, the city widened this “tax holiday” to cover all businesses, regardless of size, for three years. So whatever benefits there might be, we’ve already got them, at a much lower cost. Why then do we need to eliminate the entire tax?
The city’s cut thousands of workers in the past few years and is fighting for each dollar to avoid cutting more, and somehow still keep the lights on. Can they really be considering eliminating 10 percent of the general revenue in the hopes that the unknown formulas of Mr. Swenson are right?
One hopes not (and FYI, the[ L.A. Times ](http://www.latimes.com/news/opinion/opinionla/la-ed-taxes-20111026,0,3240114.story)agrees, sort of), but it certainly would give the folks at Occupy something to really be pissed off about.
*(James Elmendorf is the Los Angeles Alliance for a New Economy’s policy director. This column was posted first at [fryingpannews.org](http://fryingpannews.org))* –cw
Tags: Los Angeles, business tax, Charles Swenson, tax holiday, workers, jobs
CityWatch
Vol 9 Issue 90
Pub: Nov 11, 2011
[  ](https://ded2209.inmotionhosting.com/~citywa9/component/banners/click/115 "Brian Goldsmith Vertical R. Col")
[  ](https://ded2209.inmotionhosting.com/~citywa9/component/banners/click/107 "LA DWP | Save $4K, Green | Priority Ad")
[  ](https://ded2209.inmotionhosting.com/~citywa9/component/banners/click/114 "McKinney Campaign")
[  ](https://ded2209.inmotionhosting.com/~citywa9/component/banners/click/82 "LA DWP #2 (Power Savers)")
[  ](https://ded2209.inmotionhosting.com/~citywa9/component/banners/click/98 "Donna Tryfman - HS1-1")
[  ](https://ded2209.inmotionhosting.com/~citywa9/component/banners/click/97 "Home - LA DWP #2 (Pay Water Bill Help)")
[  ](https://ded2209.inmotionhosting.com/~citywa9/component/banners/click/111 "David DeJute Campaign")
[  ](https://ded2209.inmotionhosting.com/~citywa9/component/banners/click/112 "Anna Reitano Vertical R. Col")
## Get The News In Your Email Inbox Mondays & Thursdays
Message
[  ](https://ded2209.inmotionhosting.com/~citywa9/component/banners/click/113 "Rhonda Haymon campaign")
[  ](https://ded2209.inmotionhosting.com/~citywa9/component/banners/click/110 "Something You Should Know")
---
## Featured CityWatch Stories
[  ](https://ded2209.inmotionhosting.com/~citywa9/election-2024/33624-prosecutor-democrat-city-attorney-mckinney-makes-his-case-to-los-angeles-voters)
### [Prosecutor, Democrat, City Attorney? McKinney Makes His Case to Los Angeles Voters](https://ded2209.inmotionhosting.com/~citywa9/election-2024/33624-prosecutor-democrat-city-attorney-mckinney-makes-his-case-to-los-angeles-voters)
ELECTION 2026 - The race for LA City Attorney has been laced with political accusations and allegations that when close…
[  ](https://ded2209.inmotionhosting.com/~citywa9/la-watchdog/33544-the-la-watchdogs-2026-voters-guide-2)
### [The LA Watchdog’s 2026 Voter Guide](https://ded2209.inmotionhosting.com/~citywa9/la-watchdog/33544-the-la-watchdogs-2026-voters-guide-2)
LA WATCHDOG - My recommendations are influenced by the need for truly balanced budgets, fiscal responsibility, long ter…
[  ](https://ded2209.inmotionhosting.com/~citywa9/los-angeles/33626-the-fools-blame-game)
### [The Fools’ Blame Game](https://ded2209.inmotionhosting.com/~citywa9/los-angeles/33626-the-fools-blame-game)
THE VIEW FROM HERE - Angelenos do not use elections to plot a wiser course of conduct for Los Angeles, but rather they…
[  ](https://ded2209.inmotionhosting.com/~citywa9/los-angeles/33619-california-film-tax-credits-arent-enough-the-guilds-need-to-change-too)
### [California Film Tax Credits Aren’t Enough. The Guilds Need to Change Too.](https://ded2209.inmotionhosting.com/~citywa9/los-angeles/33619-california-film-tax-credits-arent-enough-the-guilds-need-to-change-too)
LONNIE’S VIEW - California used to be the center of the movie and television universe. If you wanted to make movies, yo…
[  ](https://ded2209.inmotionhosting.com/~citywa9/voices/33648-heres-what-zionisms-got-to-do-with-it)
### [Here’s What Zionism’s Got To Do With It](https://ded2209.inmotionhosting.com/~citywa9/voices/33648-heres-what-zionisms-got-to-do-with-it)
ICAN - The anonymous website “BHUSD Watch” recently published a long, detailed article about the current BHUSD board an…
---
## [ ARCHIVE ](https://ded2209.inmotionhosting.com/~citywa9/archive)
[  ](https://ded2209.inmotionhosting.com/~citywa9/archive/15339-early-intervention-and-jobs-are-key-to-stemming-chronic-homelessness-in-los-angeles)### [Early Intervention and Jobs are Key to Stemming Chronic Homelessness in Los Angeles](https://ded2209.inmotionhosting.com/~citywa9/archive/15339-early-intervention-and-jobs-are-key-to-stemming-chronic-homelessness-in-los-angeles)
### [Tucker Carlson and Gay Rightwinger Blame California Wildfires On Hiring LGBTQ People](https://ded2209.inmotionhosting.com/~citywa9/archive/18755-tucker-carlson-and-gay-rightwinger-blame-california-wildfires-on-hiring-lgbtq-people)
### [Anti-LGBTQ Veep Just Can’t Stop Talking about Mayor Pete](https://ded2209.inmotionhosting.com/~citywa9/archive/17690-anti-lgbtq-veep-just-can-t-stop-talking-about-mayor-pete)
[  ](https://ded2209.inmotionhosting.com/~citywa9/archive/15316-news-pulse-corrupt-system-reason-for-not-voting-in-2018-majority-wants-more-than-two-parties)### [NEWS PULSE: ‘Corrupt System’ Reason for Not Voting in 2018 … Majority Wants More Than Two Parties](https://ded2209.inmotionhosting.com/~citywa9/archive/15316-news-pulse-corrupt-system-reason-for-not-voting-in-2018-majority-wants-more-than-two-parties)
[  ](https://ded2209.inmotionhosting.com/~citywa9/archive/10245-dead-dog-set-on-fire-sparks-fears-for-strays-in-los-angeles)### [Dead Dog Set on Fire … Sparks Fears for Strays in Los Angeles](https://ded2209.inmotionhosting.com/~citywa9/archive/10245-dead-dog-set-on-fire-sparks-fears-for-strays-in-los-angeles)