“(We need) someone who will bring prices down,” Rep. Eric Swalwell says.
“Californians can’t afford to live in California,” says billionaire Tom Steyer.
They’re both right, but they should look in the mirror for a culprit. Big government policies –including several they are promoting in their platforms – are driving up gas prices, increasing energy costs and making housing more expensive.
Reviewing the tax debate in this year’s campaign, it’s clear what Milton Friedman said so many years ago is truer than it ever way – “keep your eye on one thing and one thing only: how much government is spending, because that’s the true tax.”
No affordability plan is serious without a discussion of lowering the state’s tax burden.
Consider that California collects 56 percent more taxes per capita than the national average and boasts the nation’s highest state personal income tax, corporate tax, and state sales tax rates.
Gov. Newsom might boast that California’s median household of $100,600 is 20.1 percent higher than the national average. But this is a mirage. As Dr. Wayne Winegarden and Kerry Jackson found in a soon-to-be released PRI study, California’s income premium becomes a 35.2 percent deficit when factoring in taxes, energy and mortgages – all brought by bad Sacramento policies.
Most of the tax debate in the campaign centers on the SEIU-UHW ballot proposal imposing a one-time 5 percent tax on billionaire wealth.
Supporters like Tony Thurmond argue a wealth tax could generate windfall proponents estimate to be as much as $100 billion to fund education and progressive spending priorities.
However, as Hoover Institution researchers recently found, roughly 30 percent of the tax’s potential proceeds have fled California along with the wealth generating entrepreneurs. The state will also suffer annual revenue losses of up to $5.8 billion as a result of these departures because these wealthy taxpayers have permanently left the state.
Worse, a recent PRI Spending Watch analysis found that a wealth tax would shrink the economy between 3 and nearly 7 percent – reducing household income, jobs and tax revenue further.
Steyer would go further, proposing a 2027 special election to gut Prop. 13 and impose a split-roll property tax scheme, which he says is a response to the “One Big Beautiful Bill” law that, “is really going to hit the California budget.”
Yes, federal dollars impact the state budget but the real problem is unsustainable spending levels that promote higher taxes and less affordability. Consider that Gov. Gavin Newsom has grown total state spending by 73 percent during his tenure. That’s not Congress’ fault – that’s Sacramento’s reckless budget priorities.
While Steyer argues a split-roll property tax plan would close the “Trump tax loophole,” a recent PRI Spending Watch analysis notes that, “families will also pay higher costs as California-based businesses, especially retail businesses, raise prices in an attempt to manage their now higher costs of doing business” – worsening the affordability crisis.
Some candidates are dancing around their proposed tax hikes.
Swalwell, for example, says he would introduce a “corporate fairness tax,” implementing a “corporate surcharge” of an undetermined amount on “the biggest corporations that choose extreme inequality,” whatever that means.
Former Rep. Katie Porter promises that she “would deliver single-payer health care” but offers few details on how to pay for it. Past experience offers the answer: massive tax increases.
A previous California single-payer proposal would have been paid for with $163 billion in new taxes, which would make the state’s current affordability problems seem like child’s play.
Other candidates are offering actual tax relief, especially in light of rising gas prices – pegged at $5.56 per gallon on March 18 – thanks to the war in Iran and the state’s more than $1.40 in gas prices surcharges due to taxes and energy mandates. San José Mayor Matt Mahan has called for the state to temporarily suspend the state gas tax, arguing that “California’s elected leaders must choose to help” those struggling to make ends meet.
In chatting with Winegarden about the candidate’s plans, he notes that there’s one thing missing from the tax debate – reforming our tax laws to encourage economic growth. Several years back, PRI’s Beyond the New Normal series outlined how to achieve a growth-maximizing level of government spending, which it pegged at about 15 percent of national income, adding about 8 percent more to account for state government.
Comparing Gov. Jerry Brown’s final 2018-19 state budget to Newsom’s 2026-27 budget proposal, total state spending will have grown by 73 percent in 8 years. This was largely hidden because the economy was growing and capital gains tax revenue soared. If the next governor is to succeed, they will need the same luck to continue for even a modest downturn will wreak havoc on an unsustainable budget. That’s why growth should be the top tax priority for the next governor.
Tim Anaya is the Pacific Research Institute’s vice president of marketing and communications and co-author of the PRI book, The California Left Coast Survivor’s Guide.