Dear City of Los Angeles,
We need to talk. I think you know as well as I do that our relationship has been going through a rough patch lately, and I want to work this thing out before we end up like Brad and Jen.
Sure, we’ve been through some bad times before: remember that subway system you just had to have? I worked like a dog to pay for it, and the damn thing just sits there. Or how about that time you said I couldn’t smoke anymore, anywhere, even if other folks were okay with it? And as for your inflated sales tax — well, I know you don’t like to talk about it. But this new “Business Tax” you’ve imposed on me is a whole different ballgame. I’m starting to think maybe you don’t like me anymore.
Now, according to the “Informational Brochure” you mailed me, because my few freelance writing gigs pay me via a 1099 form, I owe you a bunch of money for “engaging in business within the city [limits].” It strikes me as odd that you would want to punish me for trying to better my circumstances in my extra time, but it’s even weirder that your definition of “engaging in business” includes writing articles for businesses headquartered in other states. Of course, if I were a staff writer or editor-at-large doing the exact same work, but paid by W2, you wouldn’t have brought this issue up at all. And technicalities like that that are annoyingly present throughout the language of this tax provision. My hunch is that you just haven’t thought this one through.
Your brochure states that the Business Tax is a “privilege tax imposed for revenue purposes only.” But if that’s true, you’re going about getting revenue the wrong way. Remember that instituting new (or increasing old) taxes tends to alter taxpayer behavior in such a way as to reduce overall productivity and, by extension, taxable income. There’s a simple reason and a complex reason for this. The simple reason is that taxes always induce people to try to avoid them. This means either finding creative ways to get out of paying taxes (i.e., loopholes), or just moving somewhere taxes are lower.
The complex reason is a bit more, er, complex. See, when you increase the tax burden on someone for a particular job, it becomes less worthwhile to that person to work hard on that job. Since a fixed amount of his income will be taken from him no matter how hard he works, he’ll shave as much time off this taxed pursuit as he possibly can, and spend it in a way that provides him with untaxable value, i.e. leisure time. This, from his perspective, is the only way he can continue to get “paid” (now in free time, rather than money) fairly for the work he does. This reduction makes the business he works for less productive, which means it produces less taxable revenue, grows more slowly (or not at all) and hires fewer workers who themselves would pay city tax on their salaries. And, of course, less productivity means the business sells fewer products/services that would be subject to your wonderful sales tax. All these factors add up to an aggregate reduction of tax proceeds, in spite of (or, rather, because of) an increase in tax rate.
Now, you might think this perverse result applies only when you institute a relatively large tax or involve relative large businesses. But even when the tax is small, if you lay it on equally small “businesses,” (i.e., individuals paid by 1099) the same negative proportional relationship begins to take shape. That’s because when we make very little money, even a small tax can quickly reach the critical point, causing us to abandon profitable work and seek alternative uses of our time. As a completely hypothetical example: rather than pay hundreds of dollars in tax on the small amount I make writing for print magazines, I might decide to spend my time writing for an online political magazine without pay, just to be able to express my opinion on how wrongheaded and frustrating your policies are. (Not to bite the hand that feeds me — or doesn’t, as the case may be.)
But there’s more than just me to consider. After all, you’re home to the highest paid “freelancers” anywhere: Hollywood screenwriters. They represent the most basic and integral part of the most important (and lucrative) industry we’ve got in this town. So, I can understand how you believe that taxing them would help fill your coffers. But then, I’ve already explained why your current plan is likely to be counterproductive; the more you tax them, the more they’re likely to move to Vancouver. Beyond that, having been screwed over by Hollywood since the days when Errol Flynn was still swashing cheap, imitation buckles, the writers have got a union to watch their backs. But then, I guess you already found that out, since you’ve given Writers Guild members (and only their members) a tax exemption. Come on! Just because a special interest group can afford to bring an expensive lawsuit and put political pressure on you, little guys like me are left holding the bag?
Look, it’s not like this sort of thing has been popular in your other relationships. Small wonder, what with the NKVD-inspired “whistleblower” provision: 10% of recovered tax revenues to the guy who rats out his delinquent neighbor. Why not just drop the whole God-awful, misguided thing? You and I will both be better off in the long run, believe me. Still, if you won’t reconsider — well, I hear Pasadena is looking to get back together. . .
P.S. It wouldn’t kill you to get me a football team one of these days, either.
Eric Neigher is a lawyer, freelance journalist and occasional piano player from Southern California.