New York City has long been the highest tax jurisdiction in the United
States, but California politicians are proposing to steal that brass
tiara. California faces a $15 billion budget deficit and Democrats who
rule the state Legislature have proposed closing the gap with a $9.7
billion tax hike on business and "the rich." There's a movie that
describes this idea: Clueless.
The plan would raise the top marginal income tax rate to 12% from
10.3%; that would be the highest in the nation and twice the national
average. This plan would also repeal indexing for inflation, which is a
sneaky way for politicians to push middle-income Californians into
higher tax brackets every year, especially when prices are rising as
they are now. The corporate income tax rate would also rise to 9.3%
from 8.4%. So in the face of one of the worst real-estate recessions in
the state's history, the politicians want to raise taxes on businesses
that are still making money.
This latest tax gambit was unveiled, ironically enough, within days of
two very large California employers announcing they are saying, in the
famous words of Governor Arnold Schwarzenegger, "hasta la vista, baby"
to the state. First, the AAA auto club declared it will close its call
centers in California, meaning that 900 jobs will move to other states.
"It costs more to do business in California," said a AAA press release,
in the understatement of the year.
Then last week Toyota announced it is canceling plans to build its new
Prius hybrid at its plant in the San Francisco Bay area because of the
high tax and regulatory costs. Adding to the humiliation is that Toyota
will now take this investment and about 1,000 jobs to a more
progressive and pro-business state: Mississippi.
There is already a reverse gold rush going on in California and the
evidence points powerfully toward high tax rates as a culprit. Census
Bureau data show that, from 1996-2005, 1.3 million more Americans left
than came to California. And the people who are leaving are
disproportionately those with higher incomes: the very targets the
Democrats want to tax more.
The liberal fairy tale is that the rich "don't pay their fair share."
The reality is that there's no state in the country more dependent on
six- and seven-figure earners to pay its bills. Those with incomes of
more than $100,000 pay 83% of the state's income taxes, and the richest
6,000 of the 38 million Californians pay $9 billion in taxes. Every
time a rich person like Tiger Woods departs, the state fiscal problem
deepens.
The Democratic tax plan will give rich people a further incentive to
flee at the very time the real-estate market is in collapse. New
housing data reveals that the average California home price fell by 28%
from June 2007 to June 2008, almost double the decline of any other
state. The politicians in Nevada, the state with the third worst
real-estate market, are hoping California raises taxes, because this
could be a fast way to revive the Reno and Las Vegas housing markets.
What the politicians in California refuse to address is their own
overspending. State outlays were up 44% over the past five years,
meaning that California is spending at a faster pace than even
Congress. Minority Republicans in the Legislature say the solution is a
hard expenditure cap – like 46 other states have. Yet even in the
face of the giant deficit, Mr. Schwarzenegger and the Democrats want to
pass a new $9 billion water bond, a $14 billion state-run health
insurance program, and the most expensive climate-change program in the
country.
It may be that California Democrats are trying this now as a kind of
trial run for Barack Obama next year. The Illinois Senator also
believes he can solve the federal government's fiscal imbalance by
imposing higher tax rates on small business employers and the
wealthiest Americans. If they can get away with it in Sacramento, look
for a national reprise next year.
