Some interesting information appears in the Controller’s Report on revenue issued this week. Those who think taxing business is the way to solve California’s budget problem should especially take notice.
The Controller reported that while income tax came in a surprising 12.1% above May Revise projections (a plus $283 million), the increase in dollars was greatly offset by a 3.5% drop off in projections in sales tax ($124 million off)and a whopping 36.1% below projections for the corporate tax ($90 million lower than expected).
Compared to May a year ago, corporate taxes are down 49%.
Yet, with business clearly suffering some think the answer for California’s budget woes is to tax business more. Adding a tax on business will just slow business even more, which means revenue for government will likely decrease not increase.
If you don’t believe me, consider what John Maynard Keynes wrote in the Times (of London) in 1933 about the futility of trying to alleviate deficits by increasing already high tax rates:
“Nor should the argument seem strange that taxation may be as so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more — and who, when at last his account is balanced with naught on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss."