[Publisher’s Note: As part of an ongoing effort to bring original, thoughtful commentary to you here at the FlashReport, we are pleased to present this column from Thomas Del Beccaro.]
When is enough – enough – when it comes to taxes? In California, the answer seems to be never. Despite persistently ranking among the highest taxed states in the nation and consistently ranking last as a place to start a business, in part because of taxes, new tax schemes abound. In my view, it is time to stop threatening Californians with new taxes.
In some unfortunate ways, the California economy mirrors the national economy. Both the national economy and California are badly imbalanced. Nationally, we know that the labor force participation rate is at historic lows and that the number of those reliant on social services is at historic highs.
There are sectors of the economy doing well like Wall Street and the tech industry in California. Meanwhile, agricultural in California continues to be hard hit and the growing water crisis is also taking a toll on the landscape industry and soon it will do the same to new home construction.
The imbalance in the economy is reflected in who is paying taxes. Nationwide, we know that roughly half of Americans are paying federal income taxes and half are not. In California, for a number of years now, approximately 150,000 of the 38 million residents pay half of the income taxes.
Part of that imbalance is the result of highly taxing those at the top end. However, an even bigger aspect of it is the record number of Americans that lack jobs. Obviously, those without jobs are not paying income taxes. Beyond hurting those without jobs, the lack of jobs results in a very narrow tax base and that imbalance won’t be resolved until more people can find jobs and we broaden our economic base to historic norms.
Against that backdrop, you would think even some Democrats in power in Sacramento would seek to ease the tax burden and look for ways to get people back to work. Nothing could be farther from the truth. Not long ago Governor Jerry Brown boasted about California’s high taxes. Those high taxes include the nation’s highest in the land 13.3% income tax rate.
Rather than be concerned about easing the high tax burden, Californians, and those that might move here, are threatened by two huge potential increases, including a new service tax and the gutting of property tax protections that Prop 13 provides to commercial properties.
The former would impose a tax on a broad variety of services such as legal services and accounting services. Even dentistry, dry cleaning and the work of plumbers could be taxed. It is said that that tax increase would raise up to $10 billion in tax revenue. In other words, the private sector economy would lose $10 billion.
The attack on Prop 13 would allow for large tax increases on commercial property. Currently, all real property in California enjoys Prop 13 tax protection dating back to 1978. Prior to that, inflation pushed up property prices on paper and with that people endured higher property taxes, including those on fixed incomes. It became so bad that many were forced to sell their homes and Howard Jarvis, against the efforts of the establishment of both parties, started a national tax revolt with Prop 13.
Under Prop 13, when a property is purchased, thereafter it is taxed at 1% of its purchase price and then future increases are limited to 2% per year. Once again, there are those pushing an initiative to remove that protection from commercial property. If enacted, it would result in a huge increase in property taxes for owners and the tenants that rent from them.
Keep in mind that many businesses have held commercial property for years and any sudden removal of Prop 13 protection would cause a huge tax increase. They would have no choice in most instances but to pass the tax increase onto their tenants who would then seek to pass it on to consumers. Where they cannot, buildings would have to be sold at discounted rates and businesses lost.
While some don’t believe such a measure would pass, even the constant threat of higher taxes takes a toll on businesses. It adds to the reason California is rated dead last as a place to start a business.
Overall, in no uncertain mathematical terms, removing billions of dollars from the private sector cannot help the California economy. When government takes money from taxpayers, their purchasing and investment power declines proportionally and with it the private economy.
That is the last thing Californians need. Indeed, Californians need tax relief. That is why I support a flat tax for the country and California. Broad tax relief would jumpstart the weak sectors of the economy and broaden the tax base as people go back to work.
To demonstrate my commitment to tax relief and holding the line on taxes, today I am announcing that I have taken the No New Tax Pledge of Americans for Tax Reform. I challenge everyone in the race for U.S. Senate to do the same. Quite simply, California is taxed enough and it deserves a Senator will to fight for lower taxes. I will be that Senator.
Thomas Del Beccaro is a candidate for U.S. Senate seat in California in 2016. He is a former Chairman of the CA Republican Party and Publisher of PoliticalVanguard.com.