Revenue for California’s government appears to have dried up. The nonpartisan Legislative Analyst’s Office recently announced that personal income tax receipts are now $3 billion behind schedule. By the end of the fiscal year, on June 30, the tax take may fall even further.

Dwindling tax revenues are a product of Californians’ declining incomes. And with unemployment at 11 percent, incomes probably won’t head north soon. But if history is any guide, California may be on the cusp of another economic boom.

Thirty-four years ago, under similarly bleak economic conditions, California led the last great tax revolution.

Remember Prop. 13? In 1978, a large majority of voters slashed California’s property taxes, launching “the tax revolt heard round the world.” Prop. 13 also placed hard limits on the state’s ability to increase taxes or create new ones.

Opponents of Prop. 13 have spent the intervening decades deriding and undermining the measure, so it’s worth a refresher on how successful it really was. In the 10 years after Prop. 13’s passage, income in California shot up 50 percent faster than in the nation as a whole, and jobs grew at twice the pace.

Despite dire predictions that Prop. 13 would starve state budgets of tax revenue, the measure spurred so much economic growth that overall tax revenue increased by 19 percent, from $27.4 billion in fiscal year 1978 to $32.5 billion in fiscal year 1982.

Property tax rates were cut by more than 65 percent, and yet the property tax base rose enough by 1985 to fully offset the reduction in tax rates.

Unfortunately, a series of ill-advised tax increases and funding measures in the last few decades has all but nullified the benefits of Prop. 13, which fueled California’s economic growth in the 1980s.

The state’s tax rates are among the most progressive in the country, including a 10.3 percent top rate on the highest earners and capital gains.

Middle-class Californians don’t fare much better. The top tax rate on incomes higher than $48,000 is an astounding 9.3 percent. That’s more than 47 other states tax millionaires.

Meanwhile, the tax base is eroding. Once the embodiment of opportunity, the Golden State is now losing people. From 1992 to 2008, California has on balance lost some 869,000 tax filers.

The question is how much longer California’s voters will tolerate living in a state with an unbearable tax burden and faltering state services — particularly when the state’s neighbors offer friendlier economic climes.

What can California do? Other states offer examples.

For instance, Indiana recently became the nation’s 23rd right-to-work state, whereby its workers are not forced to join unions. There’s a direct correlation between right-to-work laws and available jobs, as signified by population growth. Following the 2010 census, nine congressional seats are moving to right-to-work states from compulsory unionization states.

Oklahoma, Kansas, Missouri, and Georgia are all working to eliminate personal income taxes. Over the past decade, states without an income tax have seen 58 percent higher population growth than the national average — and more than double the growth of states with the highest income tax rates.

There’s virtually no chance California will scrap its income tax entirely. But if lawmakers implemented a 5.8-percent flat tax, California’s economy would grow substantially.

It’s a shame that California appears to have forgotten the lessons of its last tax revolution — but it’s not too late. If California cuts its onerous taxes, then jobs, economic growth, prosperity, and even more tax revenue will follow.

Source: http://www.pe.com/opinion/local-views-headlines/20120603-state-to-prosper-california-should-cut-tax-rates.ece