Voters in Mountain View, California will consider whether to increase the local business license tax in this November’s election.
Currently, businesses operating in Mountain View, including large businesses such as Google, pay a flat $30 fee for government permission to operate, regardless of how many people work for the company.
The voter question, approved by the Mountain View City Council on June 26, asks residents to approve increasing the fee to $75 and creating employee surcharges.
If the public approves the proposal on November 8, the city will levy a $5 per-person fee for each employee in companies with more than one person but fewer than 25, and a $10 per-head levy for businesses with more than 50 workers.
Official estimates forecast the tax change will bring in up to $6 million in additional revenue per year.
‘Not a Good Idea’
Russ McCullough, an associate professor of economics at Ottawa University and a policy advisor for The Heartland Institute, which publishes Budget & Tax News, says the proposed jobs tax will hang a “closed” sign on the city.
“I think it’s not a good idea, for a few different reasons,” McCullough said. “Long-term, it will have the effect of deterring new businesses and new growth of existing businesses. Since it is per-person, they may intentionally shift labor elsewhere, even if they keep their physical premises where they are.”
Tom Means, a professor of economics at San Jose State University and a former mayor of Mountain View, says the tax increase is meant to target large employers.
“Most of this is based on going after big companies, because they realize if they started taxing small and medium-sized companies on the number of their employees, there would be more complaints,” Means said. “It’s how democracy works sometimes. What stops 51 percent from taxing the other 49 percent to pay for public benefits? It’s not a very good system, because it’s not applied equally nor fairly to every firm.”
McCullough says businesses with many employees, such as Google, are a net benefit to the community in which they locate.
“There is also an ’employment multiplier’ effect, in that Google is an export type of business, where most of what they produce is being bought by people outside of Mountain View,” McCullough said. “I looked at data from Portland, and businesses like Google can be in the multiplier range—the number of peripheral jobs created above and beyond the original number brought in—of 1.5 to even as high as 2.5. In short, for every job that Google brings, they also create another job or more in town for someone else.”
McCullough says voters should think twice about how taxes affect entrepreneurship before voting to raise taxes and fees on job-creators.
“The sort of track record the government currently has, in officially allocating government funds to problems, might be something for the taxpayers to think about,” McCullough said. “The small businesses are going to be the ones that will be hit disproportionately and deterred from expanding, which would also create a barrier to entry for new ventures.”
Doubts Claims of Harm
Means says the push to tax some businesses differently from others lacks a basis in facts.
“Why are we taxing these firms on their size and not a fixed cost?” Means said. “They may say larger firms impose more costs on society, and Google caused more harm than good in Mountain View because of traffic or hosing demand, but they don’t have any statistics to back that up.”