The California Tax Reform Association claims to have the formula to solve the budget crisis. The association issued a list of ten tax increases, which it claims will raise more than $20 billion dollars. According to the group, these tax increases will have little impact on economic recovery, so the governor and legislature should immediately go after the listed taxes, which the organization described as “low hanging fruit.”
The problem is this ”low hanging fruit” is rotten. Devouring it will lead to economic illness and the death of jobs.
The rotten fruit list includes tax increases on business property, oil, tobacco, alcohol, businesses, vehicle licenses, top income brackets and more.
All these tax increases and no damage to an economic recovery? These must be magical tax increases.
Let’s start with the commercial property tax increase since California Tax Reform Association (CTRA) executive director Lenny Goldberg has made a crusade of changing the business property tax formula for three decades. Raising the business property tax will cost jobs. Former state Legislative Analyst William Hamm and economist Jose Alberro issued a report last year that said it part: “To determine the economic impact of adopting a split-roll property tax, one must explicitly take account of how the split roll would affect the behavior of individuals and businesses who own commercial property. A wealth of economics research has demonstrated that, when confronted with an increase in state taxes, businesses seek to avoid their exposure to the higher tax. Taken together, these studies indicate that a 1 percent increase in state taxes will lead to a 0.25-0.31 percent reduction in the level of economic activity.”
That point is worth repeating: economic activity will be REDUCED by a commercial property tax increase. How does that aid an economic recovery?
Hamm and Alberro estimate that a one-percent increase in taxes would result in the loss of about 43,000 jobs.
How about the proposed 9.9% tax on oil production? CTRA says such a tax will have “no effect on the price of gasoline or on oil production.” Oil companies pass on additional costs to their business just as every other business does. Does anyone remember a few years ago one oil company posted signs at the pump showing a list of taxes that were included in the price per gallon?
Increasing the cost of production will hurt small oil producers still in business in California and that could result in lost jobs and decreased production.
Taxing smokers and drinkers won’t damage the economy, right? Those tax increases will cost jobs, too. When a nickel-a-drink alcohol tax was proposed earlier this year, the industry predicted a loss of 38,200 jobs would result. Even critics of the alcohol industry who dismissed this number admitted that a there would be job losses if the nickel-a-drink tax passed.
As far as cigarette taxes are concerned, allow me to repeat a paragraph I wrote last June on this site about the effects of a cigarette tax increase on business and revenue collection: “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.”
In arguing that top income tax brackets should be increased, CTRA claims, “State income taxes have no impact on the location of the wealthy…”
Perhaps CTRA never heard of the tennis playing Williams sisters who grew up in Compton and now call no-income tax Florida home. Maybe they’ve heard of California native and Stanford grad Tiger Woods—he’s been in the news lately—about an incident at his Florida home. He and his millions choose not to call California home any longer. Incline Village, Nevada across the border from California has many residents who made a lot of money in the Golden State before moving to the no-income tax Silver State. I personally know of a young man who signed a lucrative professional baseball contract and immediately moved from California to no-income tax Texas.
Don’t believe that, “State income taxes have no impact on the location of the wealthy….” As former state senator Jim Brulte noted on a television program, one millionaire leaving the state would need to be replaced by a thousand average taxpayers to make up for the lost tax revenue.
As for the business tax increases in the proposal there is no question when business pays more in taxes one option for the business to come up with the increased tax money is to cut back jobs.
The “easy” budget solution suggested by the California Tax Reform Association is a path to more unemployment misery for California workers. Let’s not bite into this rotten fruit.