“Middle Class Tax Justice” is an 18.84% Corporate Tax Hike? – Pacific Research Institute

“Middle Class Tax Justice” is an 18.84% Corporate Tax Hike?

Thanks to Trump’s corporate tax cut, companies have become, well, more enterprising. Where a 31 percent federal tax rate ruled out many new ventures, a 21 percent tax rate makes them far more viable.  So, it’s no surprise that state officials have been working overtime to attract new businesses to their home states.

Not so in California, writes Jared Walczak of the Tax Foundation.  Progressive politicians not only want to stop businesses from moving into the state, but they also want to drive out the ones who are already here.  Calling it “middle class tax justice” Assemblymen Kevin McCarty (D) and Phil Ting of San Francisco have co-sponsored a constitutional amendment (ACA-22) that would effectively more than double the state’s corporate income tax to a whopping 18.84 percent from the current rate of 8.84 percent.  Corporations, they argue, can afford to pay more because of the tax relief they got from Trump.

But the spin on “middle class tax justice” simply masks lefty politicians’ true agenda: to virtue channel their commitment to middle class Californians.  Perhaps they are beginning to fear that after years of progressive rule, the stark fact is that the lives of Californians are harder, not better.  And the numbers fleeing the state prove it, writes Joel Kotkin and Wendell Cox in the Mercury News:

A dive into Internal Revenue Service data shows distinctly that, while poor people are, indeed, leaving, the largest group of outmigrants tends to be middle-aged people making between $100,000 and $200,000 annually. They may not be ideal algorithm creators for Facebook, but they do constitute the solid middle ranks critical to any healthy economy.  Indeed, since 2010, the Golden State has seen an overall net outflow of $36 billion from these migrants (and that counts only the first year of income). The biggest gainers from this exchange are where Californians are moving, to such places as Texas, Arizona and Nevada.

Indeed, PRI’s recently released business survey bears this out.  What are the concerns preventing businesses from expanding or moving to California? Quality of life issues for their employees such as affordable housing, education, high personal income taxes, and the high cost of living. While companies know that they have it tough, they also recognize that so do their employees.

The proposed constitutional amendment, as political insiders know, stands little chance of becoming law.  A constitutional amendment requires approval of two-thirds of the Assembly and the Senate, as well as voters in November. But McCarty, Ting, and left-leaning politicians who have signed on to this bill to mete out “middle class tax justice” won’t stop the outmigration of the middle class nor the companies they work for.  Indeed, the political grandstanding may prove to have unintended consequences. What was once a trickle of companies leaving California has now turned into a steady stream. “At 18.84 percent,” writes Walczak, “It could be a torrent.”

Rowena Itchon is senior vice president of the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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