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[Buddy Kidd]

Gov. Brown's Tax Hikes Would Kill California Comeback
Posted 01/06/2012 06:35 PM ET

As California enters a second decade of decline, its old-new Gov. Jerry Brown has a plan for its revival: A 7% rise in government spending, with a tax hike to match. This is innovative thinking?

To call Brown's latest plan foolish does a disservice to fools. At least fools make you laugh. After reading Gov. Moonbeam's latest budget, taxpayers might want to cry.

Under his proposal, Brown would raise taxes on those earning more than $250,000 to 10.3% from 9.3%, while boosting sales taxes to 7.75% from 7.25%.

That's a $7 billion tax hike mostly on businesses and consumers in a state already hemorrhaging jobs and businesses, and with an unemployment rate over 12%.

In short, insanity.

The higher taxes on the "rich" hit the very people who are likelier to start or own a business. So it will be a big job killer in a state that's lost a third of its manufacturing jobs in a less than a decade.

Listening to the political and media rhetoric and looking at the state's massive budget deficit — estimated at $13 billion by the nonpartisan Legislative Analysts' Office — you might think California was a low-tax state.

Far from it. According to data crunched by the Milken Institute's California Center, the state's overall tax burden is 15th highest in the nation.


For business, it's even worse. In a survey by the Small Business & Entrepreneurship Council, California's small-business climate ranked No. 48 of 50 states in 2010. And California ranks No. 49 out of 50 in the Tax Foundation's State Business Tax Climate Index.

"The state's high capital gains and personal income tax rates, as well as high gas taxes and government expenditures, contributed to its poor ranking," a recent Milken report said.

Yet a recent poll showed that Californians favor Brown's tax hikes by 2-to-1. They seem to believe that the higher taxes will be used to reduce the state's debt — its A- rating by S&P is the nation's lowest — and to balance its the budget.

They won't. In fact, Brown will increase spending from about $85 billion this year to $92 billion next year, making things worse.

"The state of California is a very generous, compassionate political jurisdiction," he said. "When we have to cut spending, that spending is going to come from programs that are doing a lot of good. It's not nice."

Want to know what really isn't nice? Punishing entrepreneurs with higher taxes and businesses with costly regulations, sending employers to other states to avoid California's onerous regulatory and tax environment.

"In surveys, executives regularly call California one of the country's most toxic business environments and one of the least likely places to open or expand a new company," wrote Steve Malanga in the Manhattan Institute's City Journal late last year. Yes, it's that bad.

Still, the local media focus on proposed cuts in Brown's budget to schools, welfare and social spending.

Yes, some cuts will be made. California has become a welfare and immigration magnet. Today, one of four U.S. welfare recipients lives there.

But you have to put "cuts" in context. From 2000 to 2008, California's spending exploded, rising from $82.3 billion to $129.7 billion, a 55% gain.

If, instead of embarking on a prolonged, irresponsible spending spree, California's politicians had merely held state spending growth to state population growth plus inflation, the budget would today be in balance.

And if they'd stopped overregulating and overtaxing businesses, revenues would today be growing. And many of those now on welfare would have jobs.

The real crisis in California isn't its budget, which can be fixed, but a governor, legislature and voters who seem to think they can tax and regulate companies to death and still have a world-class economy.




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