The guys over at Calbuzz (Jerry Roberts and Phil Trounstine) went
on a rant in support of raising taxes yesterday claiming the way to save
California is to tax the rich and tax businesses. Tax the rich because higher
income taxes really don’t cause people to move, they say; tax corporations
because they are greedy. Furthermore, they cheered Jerry Brown taking his case
to the people on tax extensions, advising him to conduct a populist campaign
like he did when running for president in 1992.
Well, I’ll agree with them on one point: Brown should
campaign like he did in 1992 — and advocate for a flat tax like he did then. More
on that in a moment.
Taxing the rich will not be the savior of California’s
fiscal mess. People do change their behavior in response to tax increases,
especially the rich. Relying on a higher income tax will make the California’s
volatile tax system worse.
Of course not every rich person would run across state lines
when their taxes are raised. However, for each one we lose, it takes a whole
lot of other taxpayers to make up for the lost revenue to the state.
Former state senator Jim Brulte has said that for every
millionaire who takes his or her tax revenue out of California when they move
away, you need to add over a thousand new average taxpayers to make up for the
lost tax revenue.
Millionaires have been making their homes in other places.
How many Californians now call Incline Village, Nevada home? We know the story
of the tennis playing Williams sisters and Tiger Woods, Californians all, now
calling no-income tax Florida home. These examples are just the tip of the
Unfortunately, California has not done well in creating jobs
for those thousands of needed replacement taxpayers.
Then there is the question of tax volatility when adding a
greater tax burden on the rich.
As fellow Fox and Hounds blogger, Joe Mathews, wrote in a piece
for the Wall Street Journal a couple of years ago, Democrats and then Assembly
Speaker (Karen Bass) "need a tax base
that doesn’t count on a large slice of revenue from taxes on a relatively small
number of wealthy residents who can flee the state or who are themselves
vulnerable to losing a substantial portion of income in a recession."
Most rich people don’t receive standard paychecks. Investments and
capital gains, which often fluctuate noticeably, play a large role in their
Mathews was writing in reference to the Parsky tax commission that was considering
a flat or flatter income tax at that time. Which brings us to Calbuzz
advocating for the old populist Jerry Brown.
The 1992 version of Jerry Brown running for president that Calbuzz hails
was all for a flat tax. So, here’s where I agree with Calbuzz. Get rid of most
of the loopholes, many chiefly enjoyed by the rich, and treat everyone the
same. The rich will still pay the greater portion of the taxes by far and
everyone will have a responsibility for funding our government.
In 1992, Brown’s flat tax plan was hailed by the New York Times as the
"… one truly creative and important idea to emerge from this
Presidential campaign." A flat tax will eliminate tax shenanigans and encourage
economic growth, which is what California needs to get out of the doldrums.
Calbuzz also took after "oil companies and other greedy
corporate interests" to fill tax coffers by undoing business property tax
protections under Proposition 13. I’m sure they have an additional tax raising
schemes for oil companies.
Hey, California already has a miserable unemployment rate,
what are a few more percentage points going to matter, right?
Businesses create jobs and when faced with a new, heavy tax
burden one place they look at to economize is not hiring more employees, or
even letting some go. Calbuzz may not
have looked at the Milken
Institute study on the Chevron Corporation a few years ago that reported
the company has 10,000 workers in the state, but due to a multiplier effect is
responsible for 60,000 jobs, which include suppliers to the company. Raise the
taxes and employment will take a hit.
Then there is the myth promulgated by Calbuzz that raising
property taxes on business will somehow only affect corporations.
Throughout the piece, Calbuzz worried about the little guy.
for Government Analysis study says small business, largely women and
minority owned, would feel the pinch of a new business property tax. The owners
of many commercial buildings require tenants to sign a triple net lease. This
means that the tenant pays all the taxes, insurance, and maintenance expenses
in addition to rent. Small business would be the victim of a new business property
tax passed on to them.
Perhaps the Calbuzz guys are right and the taxes they pray
for will pass easily (although I doubt it.) But, from what we know, if such
taxes do pass, California will slide further into the abyss.