Trying to Make Sense of CA Tax Strategy

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

In reaction to federal tax changes, the state of California’s message seems to be that the feds shouldn’t gain tax revenue from the well-off and businesses—that’s the state’s job.

By limiting write-offs on federal taxes for income and property taxes some of our income taxpayers and property taxpayers will be injured by having to pay more to the national government, the argument goes. We can’t let that happen, legislators argue, so we’ll allow taxpayers to donate to the state like a charity so they can write-off those taxes on federal returns. California doesn’t want those income and business taxpayers to be feed up with paying more federal taxes as a result of the interplay of state and federal tax laws and decide to flee the state.

We need to keep them here–so that the state can have the chance to hit them with ever-higher taxes!

We already established the highest income tax rate in the nation with Proposition 30 in 2012 and extended that rate another decade with Proposition 55. Now there is a call to hit those top California income taxpayers again. The Service Employees International Union – United Healthcare Workers West proposed an initiative that would tax millionaires to help fund safety-net hospitals and clinics.

The praise for business that is helping create the world’s sixth largest economy is a comment repeated over and over. So what do Sacramento politicians and some advocates want to do—tax businesses over and over.

Business shouldn’t enjoy the benefit of a federal tax cut designed to grow the economy and create jobs say the authors of ACA 22. Business should not gain from the federal tax cuts, California government should. Assembly members Phil Ting and Kevin McCarty plan to create a new tax on business profits on companies bringing in more than $1 million. That could add $17 billion to the state treasury.

In fact, businesses could be hit with a double whammy. Nail business taxes on one side and then hit business property with an additional tax for up to $11 billion dollars more, as a ballot initiative proposes to do.

Then there is the reintroduction of the service tax by Sen. Bob Hertzberg. His proposal would tax services like legal and accounting. To Hertzberg’s credit he is not simply looking at a revenue-raising device but to create a modern tax structure to reflect the California economy, deal with the federal tax changes, and cut some taxes in the process. Still the idea is a tax increase in the end that business would collect for the state.

To be fair to Sacramento politicians, there was some positive news recently for taxpayers. The Assembly Revenue and Taxation committee voted down a proposal to bring back the “snack tax.” And, a bill has been introduced to undo a “space tax.” Yes, there is a tax on vehicles headed into space launched from California. You can read about it here.

There is constant talk about other taxes as well–on water and on soda, for example.

This litany doesn’t even cover the possibility of local taxes that Dan Walters writes about on this page today.

Rockets to space will not be the only things that are spiraling upward if the tax-increase advocates have their way.

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