FR friend Joel Fox, the President of the Small Business Action Committee, guest writes today’s FR Commentary, with a critical eye on Phil Angelides tax ‘cut’ plan…
Let’s accept that Democratic gubernatorial candidate Phil Angelides really wants to cut taxes as he recently pronounced; that the proposal is not a cynical attempt to buy votes after years and years of promoting tax increases. The obvious question: Is the tax cut proposal offered by Angelides a plus for the taxpayers and businesses of California? The answer must be viewed from a wide angle considering not only the tax cut proposals but what other policies Angelides offers and supports that will affect the economy and the state budget.
The Democratic nominee’s new tax plan offers tax credits for some individuals and tax exemptions for smaller businesses. At the same time he continues to call for raising taxes on upper income taxpayers, those making $250,000 or more; and increasing tax revenue from corporations.
State treasurer Angelides’ proposals gamble with the state budget. California currently has one of the most progressive income-tax structures in the nation. The top 1 percent or so of income tax payers pay about 33 percent of the state’s income tax revenue. The state treasury relies too much on high-income people, and a slight change in their financial dealings prompted by higher taxes could alter the well-being of California’s treasury.
Economic modeling indicates that high-end taxpayers will make moves to protect themselves from tax increases, investing in tax free bonds for example. The models show that even a small reduction in reportable income from these taxpayers could add up to a significant hit on the state general fund.
The result of Angelides’ tax plan means California’s budget will be even more reliant on high-end taxpayers than it already is. Recent state fiscal history shows that when the economy hits a downturn the state budget takes a huge hit because the high-end taxpayers have less to contribute to the state treasury.
Then there is the business side of the Angelides tax cut plan. The state treasurer proposes to raise taxes on corporations by closing unspecified “loopholes” while offering to cut some taxes for small business.
Since the corporate tax increases are not specified, it’s hard to determine their direct effect. But, not only large businesses will be hit by the so-called loophole closing. Small businesses that subcontract to corporations will certainly feel the pinch when the corporations have less money to spend.
As to Angelides small business tax cut, the problem for small businesses is that the tax cut proposal is surrounded by a whole slew of other ideas Angelides is promoting that will add costs to doing business in California. The state treasurer has backed a universal mandated health care plan that will surely require business funding. He also wants to change provisions in the workers comp reforms that have been in place only two years and have saved businesses, large and small, billions of dollars.
While the governor and legislative leaders recently came to terms on a minimum wage increase deal, Angelides has supported an annual indexing of the minimum wage, something left out of the newly minted compromise. That provision would be a growing burden particularly for small business if a Governor Angelides signed it into law.
And, in the recent past, Angelides has supported both lowering the two-thirds vote to raise taxes and a split roll property tax which would raise property taxes exclusively on business property. In this November election, so far he has been silent on Proposition 88, a plan to raise taxes on all California property, including business property, which Governor Schwarzenegger opposes.
Weighing all these cost-increase proposals against the tax cut plan, small business gets the feeling Angelides is attempting to leave a bottle of milk on the front porch before breaking in the back door to clean out the refrigerator.
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