When Will We Be Number One?

We have just moved up from 5th to 4th in a ranking of all 50 states by the
Washington, DC–based Tax Foundation but, for average folks, this is not good
news. California leads 46 other states in per capita tax burden, a dubious
honor that helps to explain the state’s dismal economy.

California has the highest state sales tax in the nation, we are tied for first
in gasoline tax, our income tax rate is second, and even with Proposition 13,
we rank closer to the top than the bottom in property taxes. But for Jerry Brown, a backer of Proposition 30 one of the tax increase measures on the November ballot, being number 4 is not good enough. Brown with his Proposition 30 wants to increase sales and income taxes to the tune $6 billion annually.   After the votes are counted on November 6th, if Proposition 30 passes, Jerry Brown would like to be able to raise one of those giant foam fingers, popular at athletic events, used to project the message that “We are number one!” in all states for taxes.

California’s unemployment rate is nearly a third higher than the national
average. Those with jobs labor to pay the state’s high taxes while making no
progress in their personal incomes. The Sacramento Business Journal reports
that from 2006 through 2011, Californians’ disposable income did not keep up
with inflation, ranking us 49th in the nation in income growth.

So while the governor, supported by his public employee union allies, and Molly
Munger, using her personal fortune, are working to increase the tax burden,
let’s have a look at Sacramento’s spending priorities.

California public employees are the highest paid in all 50 states. California
has 12% of the U.S. population, but its taxpayers support one third (33%) of
the nation’s welfare caseload.

In these tough times for average taxpayers, the Legislature has just given out 6% pay raises to most of its Capitol staff, many of whom earn six figure salaries. It may seem a small amount when compared to total state spending, but it clearly illustrates the lawmakers’ state of mind -- they take care of themselves and their own first.

Then there is the bullet train to which the governor and the Legislature have committed $70 billion -- money that would pay for a lot of teachers, classrooms and textbooks. They claim that this is not a problem because it will be paid for by borrowing. Yet just the interest on the $10 billion in bonds now being sold would cover the cuts in higher education to the UC’s and CSU systems that they are threatening if Proposition 30 is not approved.

The Governor, who has taken ownership of the bullet train with an almost boyish glee, dismisses objections by comparing the high speed rail project to the investment in European Cathedrals that were financed through the sacrifices of generations who never lived to see the final result. (No, you can’t make this stuff up.)

While the high-speed rail project may be on track, the state is running off the
rails. California has the worst credit rating in all 50 states. Taxpayers are
on the hook for $497 billion in unfunded pension liability for government
workers, while pay for these workers is growing 3 times faster than the
personal income of Californians. This year’s state budget approved by the
Legislature is 6% larger than last year, but the Sacramento politicians are
threatening to take it out on schools if they don’t get more money.

Proposition 30 will hit CA small businesses hard, with 83% of CA businesses
having fewer than 10 employees and filing their tax returns as individuals.
This steeply progressive tax change will increase their taxes by 30% and the
sales tax increase will impact their purchases of goods and inventories. This
on top of an increase in payroll taxes in 2013 to bail out the Unemployment
Insurance Fund (insolvent by $10 billion) and to cover excessive borrowing from
the Disability Insurance Fund.

Did I mention AB 32 – CA Global Warming Initiative passed in 2006? In 2013 we will begin to see our energy bills increase and by 2020 it is estimated that the average CA family will pay $2500 more per year and lose $900 per year in earnings as a result of this legislation. Studies show there will be 262,000 fewer jobs in CA and a loss of $7.4 billion in local and state tax revenues. Is it any wonder that individuals and businesses are fleeing the state in ever larger numbers each year?

Voters are being blackmailed by Governor Brown with the threatened cuts to education when it is clearly opposite of the hopes and priorities of Californians. Californians want their government to provide good education, good public safety and a growing economy where jobs are plentiful and government revenues are flowing. An unemployment rate near 11% for more than 45 months is not a growing economy.

And a little known fact is  that the trigger cuts are not ‘automatic’. If voters do not pass Proposition 30, the state lawmakers still have to vote on the trigger cuts. With revenue to the state increasing in 2012 including increased sales tax revenue on gasoline sales when gas prices spiked, voters should demand and expect different priorities in the Governor’s spending plan.

On November 6 we will see if the Sacramento “bully boys” have been able to intimidate enough voters to approve their tax increases and make California number one in tax burden. We hope not. A far better outcome would be if voters say no -- recognizing that taxpayers already pay more than their fair share. That’s the message that will help force our state politicians to clean up their act.