With the continuing economic crisis evaporating government treasuries in California, businesses big and small find themselves the targets of advocates who seek more revenue to offset potential budget cuts and officials who must deal with spiraling costs.
There is a well-financed effort led by public employee unions to raise taxes on businesses and products. Public employee unions have been circulating a poll that claims to show voters, who recently rejected a continuation of the budget deal taxes, are willing to raise taxes on certain businesses and products.
Not so fast. Such claims have been made before but when the voters actually have to vote on these tax increases they understand that the taxes will filter down to the consumers.
Two favorite targets of the spending coalition are oil and tobacco industries. Tying government programs to a shrinking revenue source such as tobacco makes no sense. A survey on cigarette tax increases in 2003-2004 showed that 75% of the states that raised taxes did not receive anticipated revenue. Adding an oil severance tax will jack-up all ready increasing gasoline prices. Voters understand this. When Proposition 86 to raise cigarette taxes and Proposition 87 to create an oil severance tax were on the 2006 ballot both were defeated.
Some think that raising taxes on these products will somehow punish big business and that big business can take the punch. But, small business is the victim of this foolishness.
Take cigarette sales, for example. Convenience stores rely heavily on cigarette sales to be profitable. According to the National Association of Convenience Stores, cigarettes are the top selling item in the stores (exclusive of gasoline.) If taxes were to increase dramatically, fewer people will purchase the product from California retailers. While it is good for health reasons that some people will decide to give up smoking because of the tax increase, to avoid the higher taxes many will turn to other means to acquire their cigarettes such as Internet purchases, buying cigarettes from smugglers, or bringing them in from neighboring states. Small retailers, so vital to many California consumers, may be irreparably damaged.
And if the tax increase campaign weren’t bad enough, intolerable workers compensation costs, which were destroying businesses before reforms engineered by Governor Schwarzenegger five years ago, could be making a comeback. Insurance Commissioner Steve Poizner is considering a proposal from the Workers Compensation Ratings Bureau to raise workers compensation premiums insurance rates 23.7%.
Big increases in workers comp will hit businesses hard during this economic downturn. We’ll probably see a return of ads in business journals placed by other state development offices trying to lure California’s businesses away. Similar ads were quite common before the 2004 reforms took hold.
Other threats against the business community from raising corporate taxes to creating a separate property tax roll for commercial property are just counter-productive grabs at dollars that will undermine the key to economic recovery in California. Along with the threat of workers comp insurance increases; the tax increases will be a double-whammy hitting business.
Meanwhile, CNBC’s ranking of cost of doing business and business-friendly environments has California listed as 48th in both categories. And, I guess you can say that’s the positive news, since Forbes.com has California business cost ranked 50th.
Here’s the irony of all this. California’s avenue to greater government revenue is through economic growth in the private sector. According to California tax historian Dave Doerr, business activity has always grown government coffers more steadily and faster than any tax increases.
Shortsighted political agendas just may poison the golden goose.