GRT has chilling effect

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Tweaking likely to stimulate small business investment

By Richard Hannemann

Gov. Susana Martinez is proposing tax-cuts to help the economy.  
OK. That kind of depends on what kinds of cuts.
I have a recommendation: Reform the GRT. Either:
• Tax moneys earned from services as personal income;
• Apply the GRT only to the profits reported on Federal Schedule C;
• Give a $25,000/yr deduction on the GRT to self-employeds/sole proprietors, which would be considered personal income, and reported/taxed accordingly as per any individual income; or
• Some combination of the above.
The GRT is a business income tax, not a consumption tax.  
The recommendations above do not alter this.  But these reforms, which essentially remove the personal income aspect of business revenue from the GRT and transfer them to standard personal income tax, do acknowledge and address business owners and the self-employed as the forgotten employees.  
They, like everyone else, do in fact work for a living for the purpose of putting food on the plate and a roof over the head.  
Currently GRT works out to be double taxation on the self-employed’s personal income.  
Each dollar is taxed once when it is earned, and again when it is spent.  
A business may be able to generate the income to pay for the business costs (rents, utilities, employees, inventories), yet if there isn’t enough left over to pay household expenses then the business will close.
The federal government treats business, particularly small business, more fairly than does New Mexico.
The truth is that the GRT, as currently structured, is a direct assault on the personal incomes of small business owners and, as such, it is anti-business and anti-self-employed.  
If New Mexico has difficulties attracting business, perhaps the GRT is a large reason why, particularly when you consider that only eight states actually use some form of GRT and most of those are modified forms.  
Reform of the GRT, by removing the personal income aspect of small business revenues from the GRT and treating it as personal income, would likely stimulate small business investment.
It is a fact that, nationwide, small to mid-sized businesses, the ones most likely to be sole proprieteorships, account for 80 percent of the general employment in the economy. Reform of the GRT would be a jobs bill.
Such reforms would not result in huge losses to the state.
In an interesting dichotomy, though small business accounts for 80 percent of general employment, big business, which is most likely to be corporate, accounts for 80 percent of GDP.  
Thus, these tax reforms would apply primarily to only 20 percent of the state’s GDP.  
Since the personal income aspect of a small business would be treated exactly the same as any personal income, there would be some off-set in the cost of the reforms.
Yet though these reforms would apply primarily to a small percent of the total state GDP, they would stimulate business investment and growth and employment.
Consider who these reforms would most benefit:  beyond the obvious of mom-n-pops.
Consider  small retailers, restaurants and store front services, these reforms would benefit sole proprietors in the travel/tourism industries, sole practitioners in the legal and health care industries and people in the arts, trades and agriculture.
In a state where the majority, almost 70-75 percent, of the population lives in small cities, small towns and rural communities, the economic stimulus effect of these reforms could be of significant degree.
New Mexico invariably falls into the bottom third of states in economic rankings.
It is time we acknowledge and address the fact that the chilling effect on business of the current GRT is one principal reason.
Richard Hannemann
Los Alamos