California's Tax Trap

The Wall Street Journal ^ | Tuesday, January 14, 2003

[TroutStalker]

If most Governors are suffering from budget headaches these days, then California's Gray Davis has a full-blown migraine. And to close his state's astonishing $35 billion deficit, he's decided to give everyone else a migraine too, by raising taxes in a way that will keep California in the same boom-and-bust revenue cycles responsible for its current predicament.

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[Atlas Sneezed]

"If most Governors are suffering from budget headaches these days, then California's Gray Davis has a full-blown migraine. And to close his state's astonishing $35 billion deficit..."

Just to put things in perspective, it cost only 3 times that (in adjusted dollars) to fund the Apollo program that put a man on the moon!

[Ernest_at_the_Beach]

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[tubebender]

I have had a headache the last three mornings...Now I know why. I will be very amazed if Calif doesn't have a revolt at many levels. Taxpayer and tax receiver alike.

[daviddennis]

Wouldn't a flat tax also generate bursts of revenue?

The most stable revenue source is probably property taxes, since they rise and fall with the worth of tangible property, and there are caps on them to make sure they don't grow too much. I would think that might be the least offensive type of tax increase, seeing that it would not give people an incentive to earn or spend less. If Gray Davis was serious about adjusting the tax system to be more stable, that's what he'd do. And then he'd lower income and sales tax rates to encourage greater sales and income.

It is remarkable how regressive Davis' tax proposal is. Low income people smoke at a much higher rate than the overall population, and they also spend most of their income. Taxes on cigarettes and sales are the most egregious increases. With stock option income melting to near zero, I don't see increases of taxes on the rich to be much other than grandstanding.

Frankly, if I were governor, I'd take a meat axe to the budget instead of raising taxes. But I'm surprised a property tax increase wasn't more seriously considered. I'm not saying it's a good option, but I'd surely prefer it to taxes that discourage economic activity.

Thoughts?

D

[Lizavetta]

As usual, not a word from Doofus Davis about fraud in Medical, welfare, bloated government, schools billing Sacramento for students it doesn't have, or the zillions being sucked away by illegal aliens using school and medical services.

We'll be packing up and leaving in a few years, taking my husband's business with us. Gray Davis is making it prohibitively expensive to hire people, pay people, and to even profit from your efforts. Our leaving will result in a loss of 3 employees and 2 partners, both of whom are 'rich'.

It's no wonder that the schools don't teach economics and the deadening effects of government on the health of the private sector.

[John Jorsett]

But I'm surprised a property tax increase wasn't more seriously considered. I'm not saying it's a good option, but I'd surely prefer it to taxes that discourage economic activity.

One reason is that it would take a vote of the people to override Proposition 13, and they don't have time for that. Plus, Prop 13 has "third rail" status in California politics. No one has the guts to touch it.

[Dog Gone]

All taxes are subject to fluctuation, although property taxes are probably less volatile than most. Frankly, I'm shocked that Davis didn't seek to impose huge vehicle registration fees. Like property taxes, they aren't volatile, and they collect money from people whether or not they own real property or even have taxable income.

It's even "progressive" in that taxes newer, more expensive, and heavier vehicles more greatly, meaning it soaks the rich Republicans driving SUVs.

[daviddennis]

I think he figured that he couldn't get it past the Republicans, and I have a feeling that, fortunately, he's right.

But would it be easier than job-killing income or sales tax increases? I would think they'd be considerably worse.

I'm most upset over the cigarette tax increases. I don't smoke, and I don't like smoking, but some of my best friends are major cigarette addicts and this is going to be like a punch in the stomach for them. I might add that ALL of them make considerably less money than I do. Cigarette taxes are the most horribly regressive taxes in the world.

I have a feeling illegal drug use is going to rise significantly after this, since pot isn't going to be significantly more expensive than the equivalent amount of time spent smoking!

Is this what Governor Davis wants?

D

[Dog Gone]

The cigarette taxes are obscene. What will that make a single pack in California, over $6.00?

Taxation is a tricky matter. Some level of taxation is obviously necessary, but at some point when you raise taxes too high, overall collections start to decline. The power to tax is also the power to destroy.

I don't know if California is all the way to that point yet, even with these new tax proposals. But it's precariously close, and the business recovery is going to be slowed and delayed at best.

[razorback-bert]

Davis has never played Sim City.

[daviddennis]

Well, in Castro's Cuba, where I was late last year, brand-name cigarettes cost a whopping $1 a pack. Fidel must be chuckling right about now.

Heavy smokers are going to have no choice but to buy online, from tax-exempt "Native American" vendors. I think the tax increase is going to be fiscally devastating to many, but it's not going to raise nearly as much as Davis hopes. It will especially hit hard the cash flow challenged, aka the poorest Americans.

And the cash flow challenged may wind up buying from their friends. It's the perfect business, including a guaranteed profit, and would be so easy to do (if I had a lot of smoking friends, that is). Yes, there are risks, and penalities, but for penny-ante amounts enforcement is going to be just about impossible.

Just for reference, how much is a pack in Texas?

D

[Dog Gone]

It's about $4 for a single pack, although many premium brands are available for about $26 per carton, or $2.60 per pack.

[Tijeras_Slim]

Davis has never played Sim City.

Not for more than a few minutes at least....:)

[Publius6961]

Wish the chart would display on my computer...

[TroutStalker]

Does this help?

WORKING FOR GRAY DAVIS

Growth in government jobs compared with growth in population, 1997-2001

Government Jobs (% increase)--- Population (% increase)

California -- 13.6 --- 6.2
Florida -- 5.4 --- 8
Texas -- 2.9 --- 8
Arizona -- 8.1 --- 12
Nevada -- 9.6 --- 19.4
U.S. -- 5.8 --- 4.5

Sources: U.S. Bureau of Economic Analysis, U.S. Bureau of Census

[TenthAmendmentChampion]

Prop 13 put a cap on property taxes.

[Joe Hadenuf]

I have had a headache the last three mornings...Now I know why. I will be very amazed if Calif doesn't have a revolt at many levels. Taxpayer and tax receiver alike.

LOL! We already are. We have become extremely good at avoiding as much tax as possible. I consider it my second job. Hehehe....I suggest others do the same. And avoid all debt.......