Portland Business Tax

The city of Portland has a really harsh business licensing tax. Small businesses have been screaming about it for a long time. The perception here is that many small businesses leave or don't set up shop here at all because of the way the license tax is figured.
councilman Sam Adams, the frosh on the council, has been hounding the other councilmen for weeks with an idea he has to offer some relief to businesses in the city. But he still lacks the votes to get it done.

Call him politically stubborn if you'd like, but City Commissioner Sam Adams
plans to keep pushing his colleagues to reduce Portland's business license fee
even though he doesn't have the votes.
Adams and Commissioner Dan Saltzman
want to raise the minimum deduction business owners can claim on the city's
business license fee. They're one big vote short of what they need to pass the
change. But Adams says he's bringing the idea before the City Council today to
send a message.

City commissioners have been debating a way to reduce business taxes in Portland for years, and business owners have been clamoring for tax breaks for even longer.
Almost 42,000 businesses pay the license fee, an annual charge of 2.2 percent of their net, pretax income on transactions within the city. Under city policy, all businesses affected can deduct a minimum of $57,000 from their income. Adams' plan would gradually raise that deduction to $125,000.

The rest of the council is unsure how the lost funding will be replaced. They complain that Adams hasn't figured in the cost of what he is proposing.

The change would cost the city at least $4.3 million annually of the $40
million or so the business license fee generates. Adams wants to pay for those
losses using future revenues above those predicted by city economists and
already factored into the city's spending plans. He would tie the increase in
the minimum deduction to revenue increases over the next few years, meaning if
revenues don't outpace expectations, the deduction wouldn't grow.
Mayor Tom
Potter and Commissioners Erik Sten and Randy Leonard say they're not comfortable
with that financing plan, especially with the City Council facing a potential
gap between projected revenue and planned spending that could reach $16 million
-- and could rise more, depending on how a variety of uncertainties, including
health care costs, play out over the next five years.
"I need to make sure
that we know what the impact is on our revenue stream, and I don't think we know
that right now," said Leonard, who last year suggested using a proposed cell
phone tax to reduce the business license fee. "The idea is right, but the
follow-through isn't there yet."
Adams says he'd happily set aside $4.3
million in the pot of one-time 2005-06 revenue that the City Council is in the
process of divvying up. But everyone in City Hall has different preferences for
how to use that money, including proposals to spend more fighting homelessness
and drug abuse.

Oh, fine. Everyone has different preferences for how to use the money. Even local governments can't control spending. Can anyone in government balance their budget these days?

The Bureau of Licenses analyzed his plan and reported that 62 percent of the
tax reduction would benefit businesses with 50 or fewer employees.
At the
same time, more than half of the money saved by businesses would go to those
earning more than $1 million annually. The biggest category of beneficiaries
would be in the financial, insurance and real estate industries.
"Some say
this doesn't go far enough or doesn't affect a wide enough range of businesses,
but keep in mind that many of the businesses that would be included are very
mobile. They can pick up and go anywhere," said Patrick Donaldson, president of
the Hollywood Boosters and co-owner of a three-person security consulting
company. "Perception is reality on this one. This is the kind of the thing that
can help cut off those who say Portland isn't a good place to do business."

That's the crux of it, isn't it. Whether business stay or go. I wonder if the council has considered that lowering the impact of a harsh business tax will encourage more businesses to locate here, and thus increase the amount of taxes they collect overall.
But that would be too much long term thinking.