Gross and Net
By Paul Jacob
Why has Illinois's governor, Rod Blagojevich, cooked up such a crazy new tax? Could it really be that he doesn't understand the first thing about economics, business, or accounting?
What doesn't he get? The difference between "gross" and "net." Blagojevich's new corporate tax is based on gross receipts. The current corporate income tax allows for too many "loopholes," he says. I wonder if he regards business expenses as "loopholes"?
A business can move a lot of goods and money around, and thus show, on paper, a huge gross income. But figure that net income, including expenses, and . . . it's a whole different story. Many businessses earn scant profits, a few percentage points of the gross, or even run, for a time, in the red. To tax based on gross receipts rather than net income can really throw a monkey wrench into the works.
In mid-April more than 100 business owners packed into a forum sponsored by Americans for Prosperity, a lobbying groups for small, transparent government. These businessmen are angry.
Aurora dairyman Jim Oberweis is especially annoyed . . . even though his own businesses would be exempt from the tax."I think we have a spending problem in this state, not a revenue problem," he said.
The smart money says this new tax has almost no chance of passing the legislature. But it might soften some for lesser tax increases.
Gross are the dreams of the politicians; net is what they actually achieveat our expense.
This is Common Sense. I'm Paul Jacob.
