Democrats in Sacramento are still operating from the point of view that if government raises taxes, more revenue will ensue. If members of the majority party would simply check empirical evidence, they would see that California has gone past the point of peak revenue generation and not only will fail to generate increased revenue, but will in fact greatly hinder California’s economic recovery, causing more businesses to pull out of the state or to close their doors altogether.
Case in point: the “Amazon” tax (Assembly Bill 28x) recently passed as part of the partisan majority vote budget deal.
According to business and finance experts, due to Governor Brown’s signing of AB 28x, approved by Democrat legislators on a party-line vote, small web-based businesses’ revenue will drop by 20% to 30%. Why? As a direct result of the enactment of AB 28x, larger internet retailers, such as Amazon.com and Overstock.com, have already sent notices to over 20,000 California affiliates business terminating their contracts for advertising services.
The Governor and Legislative Democrats ignored market realities and used a questionably optimistic report by the State Board of Equalization to justify passage of a bill that will further damage California’s fragile economy. To approve AB 28x with the fallacy that it would generate a revenue windfall of $200 million annually ignored the impacts of similar laws in other states. Specifically, in the Colorado, North Carolina, and Rhode Island when a similar law was enacted, Amazon immediately ended all their relationships with businesses within those states. It should have been clear from these examples that such a law would adversely impact California businesses. Yet, Legislative Democrats, once again, disregarded sound evidence that such legislation would be detrimental to our economy and passed it anyway.
Due to the termination of the online affiliate retail programs, rather than seeing an increase in sales tax revenue, what is more likely to occur is a sharp reduction in internet sales activity through these affiliate programs. These online retailers will only move their advertising programs to companies and businesses not physically located in California. Again, California lawmakers have chosen to further undermine California’s competitiveness and increase our jobless rate.
Another potentially detrimental effect of the enactment of AB 28x, will be a further loss of income and payroll tax revenues the state would otherwise have generated from those affiliate businesses currently operating within California. Many of these businesses will either go out of business or move their companies out of state, resulting in a contraction of California’s depressed economy and compounding the state’s fiscal problems.
If the Governor and Legislative Democrats were serious about addressing California’s annual budget deficits, reducing our debt, creating new jobs and protecting taxpayers, bills like AB 28x would never have been introduced. Rather than continuing to impose undue restrictions on economic activity, we would be better off if our state government would step aside and allow the innovation and creativity that hardworking Californians possess to be harnessed, creating jobs and wealth for all of California.