NCPA - National Center for Policy Analysis


July 18, 2008

California faces a $15 billion budget deficit and Democrats who rule the state Legislature have proposed closing the gap with a $9.7 billion tax hike on business and "the rich."  This is a very bad idea, says the Wall Street Journal.

The plan would:

  • Raise the top marginal income tax rate to 12 percent from 10.3 percent; that would be the highest in the nation and twice the national average.
  • Repeal indexing for inflation, which is a sneaky way for politicians to push middle-income Californians into higher tax brackets every year.
  • Increase the corporate income tax rate to 9.3 percent from 8.4 percent.

This latest tax gambit was unveiled, ironically enough, within days of two very large California employers announcing they will be leaving the state because the costs of doing business in California are too great:

  • First, the AAA auto club declared it will close its call centers in California, meaning that 900 jobs will move to other states.
  • Then last week Toyota announced it would be moving about 1,000 jobs to Mississippi.

The liberal fairy tale is that the rich "don't pay their fair share."  In fact, those with incomes of more than $100,000 pay 83 percent of the state's income taxes, and the richest 6,000 of the 38 million Californians pay $9 billion in taxes, says the Journal.

What the politicians in California refuse to address is their own overspending:

  • State outlays were up 44 percent over the past five years, meaning that California is spending at a faster pace than even Congress.
  • Even in the face of the giant deficit, Schwarzenegger and the Democrats want to pass a new $9 billion water bond, a $14 billion state-run health insurance program, and the most expensive climate-change program in the country.

Source: "California As No. 1," Wall Street Journal, July 17, 2008.

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