Proposed service tax is a dangerous prospect

Loren Kaye
President of the California Foundation for Commerce and Education

When politicians spend money as if the money was there, then they don’t have to raise taxes.  California leaders have practiced this sleight-of-hand for years, and now the bill has come due.

The California Legislature went on a spending spree that has nearly doubled outlays since 1998.  Now, faced with a $15 billion budget deficit, many elected officials and interest groups are advocating tax increases to pay for overspending.

With California sales and income tax rates among the nation’s highest, and its corporate tax rate in the top ten, the tax-and-spend lobby is reaching for more creative – and economically damaging – sources to feed the beast.

Topping the list is a new sales tax on services – an idea that has failed miserably when attempted in other states.  But the promise of a tax windfall is so alluring that the tax spenders cannot help themselves.

An elected leader of California’s top tax collection agency has prepared a list of services that when newly taxed would raise more than $8.7 billion, just for state purposes.  Another $5.8 billion would be raised for local government coffers.

Trouble is, these numbers don’t add up economically or politically.

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