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E-mail Print Californians face growing tax burden
Business and Economics Op-Ed
4.29.2006

San Gabriel Valley Tribune, April 29, 2006
Orange County Register, May 7, 2006

STATE treasurer Phil Angelides recently admitted that if elected governor he would raise taxes for Californians.

His poll numbers soon dropped, and that can be no coincidence.

Perhaps Angelides was unaware that Californians' overall tax burden is already getting heavier and that this year they have to work three extra days to pay it.

According to the Washington D.C.-based Tax Foundation, the day when average Californians have earned enough to cover their annual federal, state and local taxes.

The day, which is four full months into the year, marks the point in the calendar year when Californians cease working for the government and begin working for themselves.

Of the 120 days Californians will spend working to pay for government in 2006, two-thirds of the time will be spent paying federal taxes such as Social Security and individual and corporate income taxes.

The other 40 days reflect the cost of California's state income, property and local sales taxes.

This year's Tax Freedom Day will come three days later than it did in 2005 and a full 11 days later than it did in 2004.

The reason: California's healthy economy is producing sizable income growth and the state's highly graduated personal income tax is collecting revenue at an even faster rate.

Because the state income tax relies heavily on the wealthiest tax filers, the growth in personal income means an even greater growth in the size of revenue collection.

And an increased influx of tax dollars relative to personal income means that Californians must work more days per year to fulfill their tax obligation.

But this uptick in California's tax barometer hasn't fazed those who support tax hikes to fund a litany of government programs.

Take the pro-Proposition 82 crowd, for example.

Prop. 82 is the government-preschool-for-all measure advocated by movie director and activist Rob Reiner.

If approved by the voters in the June 6 primary, it would impose a 1.7 percent tax on individuals earning more than $400,000 and couples earning more than $800,000.

Proponents say this proposal will bring in more than $2 billion annually and that the costs will only be borne by the 0.6 percent of Californians who cross that income threshold.

But California history provides a lesson: when we try to soak the rich, everyone pays.

In 1991, the state created two new upper-income tax brackets in order to cover a $14.3 billion budget deficit.

Instead of filling in the gap, the tax led to the loss of 350,000 jobs, shrinking the tax base enough to drop revenues by $2 billion in the following two years.

Only when those tax increases were repealed in 1995 did the state see significant revenue gains and begin its economic recovery.

Prop. 82 would put the state's top marginal tax bracket at 12 percent, one point higher than the top rate in 1991.

The most vocal advocate for tax hikes in California is Phil Angelides.

If elected governor, he plans to reinstate the 11-percent tax rate on the wealthy.

Oddly enough, Angelides' plan doesn't take into account Prop. 82's potential impact - strange considering the fact that he has endorsed the measure.

Not content with just boosting income taxes, he also plans on increasing corporate and inheritance taxes.

Fortunately, most Californians aren't buying into Angelides' plan.

A recent Field poll shows Angelides trailing his Democratic counterpart, State Controller Steve Westly, by 11 points.

Westly has stated he would only raise taxes as a last resort.

If Californians truly want to advance economic growth, raising taxes is not the answer - especially when the tax burden in neighboring states is much lower.

Nevada, a state with no income tax, celebrated its Tax Freedom Day on April 26.

Oregon and Arizona's were even earlier, with Tax Freedom Days of April 21 and April 20, respectively.

By cutting taxes, California will improve its position relative to the other states.

While some trumpet the call for more taxes, average Californians spend a third of the year working to fund the government.

Its time for Californians to quiet these pro-tax crusaders, lest they risk celebrating Tax Freedom Day in the summer.

Today marks California's Tax Freedom Day.

 


Anthony P. Archie is a public policy fellow in business and economic studies at San Francisco’s Pacific Research Institute. He can be reached at aarchie@pacificresearch.org

Copyright 2006 MediaNews Group, Inc. and Los Angeles Newspaper Group, Inc.
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