Laffer flat tax would make California boom

April 6, 2012 - By admin

April 6, 2012

By Brian Calle and Josephine Djuhana

It should come as no surprise that the economic growth rates and prosperity for states with excessive regulations and taxes are much lower when compared to states with fewer regulations and modest taxes. Incentives, such as low taxes and humble regulations, attract business and investment, which in turn spur economic benefits and job growth. It is not Republican or Democrat, liberal or conservative, “it’s just good economics,” as Arthur Laffer, noted economist and economic advisor to former President Ronald Reagan, likes to say.

California lawmakers ought to take note.

Laffer’s new book, “Eureka! How to Fix California,” was commissioned by the Pacific Research Institute, CalWatchDog.com’s parent think tank. The former California resident attempts to knock some sense into the political class in Sacramento, urging policy makers to focus on good economics instead of politics as usual. He wrote the book, he said, to create a blueprint for reforming California— to put the once Golden State back on a path of prosperity.

Laffer looked at various state economic data and found some significant disparities between states that instituted progressive income tax policies versus those that did not—particularly the gap in state growth between states with income taxes and states with none.

Eleven states introduced progressive income taxes within the past fifty years—Connecticut, New Jersey, Ohio, Rhode Island, Pennsylvania, Maine, Illinois, Nebraska, Michigan, Indiana and West Virginia. And of the 11, all states declined as a share of the U.S. economy. Michigan’s economy, for example, was at 5.08 percent of the US economy in 2005; that percentage slid to 2.64 percent in 2010. Like Michigan, Ohio’s wealth diminished as a result of similarly poor economic policies, Laffer argues. “The only things that still look nice in Ohio are the public government buildings,” remarked Dr. Laffer, during a recent stop on his book tour in Orange County.

Laffer also explores migration patters between states with varying tax rates; comparing “right-to-work” states—states where employees retain the right to decide whether or not to join or financially support a union—and “forced unionism” states—where an individual must pay union fees as a condition of employment and has forced union representation.

Right-to-work growth

In right-to-work states, Laffer found more economic growth, while “forced union” states trended the opposite direction.

The 22 right-to-work states experienced a 52.83 percent jump in gross state product; on the other hand, the 28 “union-shop” states had a 41.72 percent gross state product growth, less than the 46.61 percent US average.

“Right-to-work” states also trumped their forced-union counterparts in personal income growth, payroll employment growth, population growth and net domestic in-migration. Part of the reason that the growth gap is so large is that employers have a tendency to move away from forced-union states, not just to scale back wages and salaries, but also to avoid intrusive union rules, lawsuits, work stoppage threats and more.

Laffer’s proposal to reform California’s tax system should come as no surprise for those who have followed his work. He calls for a flat tax for the state of California; one simple tax on net business sales, and another on personal unadjusted income. His proposal does call for keeping “sin taxes” on the books, those taxes on cigarettes, etc., that are more meant to alter behavior than to raise revenues. Those concerned with the role of government in legislating personal decisions might argue that such sin taxes ought to be ousted as well.

California’s current tax system causes much unsettling volatility in state tax income year-to-year by making budgeting at the state level often incoherent. For example, in 2001, income from capital gains taxes (and other onetime revenues) made up a quarter of state tax revenue, according to Laffer.

And California has so many taxes (Laffer stopped counting after he studied 162 of them) that the tax code is overwhelmingly and unnecessarily complex, hence Laffer’s push to simplify it.

Looking at Sacramento today, though, there appears to be no political will in the legislature or with Gov. Jerry Brown to reform the tax code and especially institute a flat tax. Laffer dismisses that, noting that, when Brown ran for president in 1992, Brown proposed a national flat tax, making it part of his platform in the Democratic primary. “He was the first prominent presidential candidate to ever propose a national flat tax,” Laffer said. Optimistically, Laffer argues that, given the right situation, Brown could be amenable.  We shall see. Brown, this time around, seems more beholden to public employee unions than during his previous stint as governor.

“Political partisanship is ruining the politics of our country,” Laffer concludes. Fixing California requires a nonpartisan effort to eliminate excessive taxes and regulations, and to create a business-friendly environment that encourages economic activity. Laffer’s blueprint, in short, challenges California politicians to put partisanship aside and embrace simple economics.

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Comments(23)
  1. Rex The Wonder Dog! says:

    The flat tax is a scam, much like Laffers supply side was. We need to fix the current system, make it progressive, not regressive, and not ta anyone making less than $10K per year, keep sales/use/excise taxes to under 6% and stop adding new user taxes onto tobacco and other products.

    Glad he left La Jolla and is now in TN.

  2. Rex The Wonder Dog! says:

    BTW-got a robocall from Jerry Clown last night, he said that he was sending a “petition” in the mail so that he can “stop cuts to education and public safety”, aka the tax hikes.

    He never mentioned cutting grossly excessive gov pay and benefits though.

  3. Beelzebub says:

    10% of Americans own 90% of the nation’s wealth. Those people are living like kings and queens. They should pay more proportionally in taxes. Sure, a few of them pulled themselves up by their bootstraps to become filthy rich. And I applaud them. But the majority were born into it. It was handed to them. The majority of it is old money. America is becoming more like a 3rd world county. Real opportunity to succeed for an ordinary american is nothing like it was 30, 40 or 50 years ago. 90% of Americans only own 10% of the the country’s wealth. Come on. That’s wrong. Let’s fix that problem first. I’m talking about the waste, fraud, corruption and cronyism. I am not saying we should reward people who live off the dole. The welfare apparatus, particularly in California, needs widespread reform so people like Octomom can’t game the system. But ordinary, decent americans who work hard and keep their noses clean deserve a better shot at financial success. The average wage for the ordinary american has been stagnant for over a decade. The poverty pie has grown tremendously in the last decade. That needs to get addressed. If trickle-down worked we wouldn’t be in the mess we’re in today.

  4. queeg says:

    I love the rich…..they provide jobs….they made my lifestyle much better…

    I’ m very happy with Capitalism and trickle down economics.

  5. Beelzebub says:

    Jerry Clown sent me an email today. I have no clue how he got my email address. He asked me to join his coalition. :) Imagine that. Of all people he asks me.

    In part, this is what he said:

    “The California State Sheriff’s Association is the latest organization to join a growing coalition of teachers, public safety, business and others in support of my Local Public Safety and Protection Act. It’s the only initiative that will protect local public safety funding, education AND help balance California’s budget. We have to do all three”

    Naturally the cops and teachers have jumped aboard the leech wagon. I am getting so damned tired of being asked to give more and more and more and more for the kids and to keep the criminals at bay. They aren’t worried about the kids or the safety of the public. They are worried about taking a salary and pension haircut.

    I sent back a brief reply:

    “When hell freezes over”.

  6. Rex The Wonder Dog! says:

    Clowns taxes are DOA-they are not going to pass.

    Did you read thr LA Times this evening??? Their TOP budget official says LA is going to have to raise all kinds of taxes (good luck with that) or go BK. I guess that 7% annual raises over FIVE years at DWP was too much, or maybe it was the $125K compensated parking lot attendants, or $200K cops and FFs.

    Ex mayor Riordan Said LA would be BK by 2014-looks like he was correct.

    http://latimesblogs.latimes.com/lanow/2012/04/los-angeles-bankruptcy-budget-layoffs.html

  7. Schifter says:

    Hey Rex the Wonder Dog,
    You dumb dog, sales taxes hurt the poor more than anyone else. Why stop at 6 percent? Why not just put it to zero?

    Here is what would IMMEDIATELY start helping the poor:

    1) Eliminate ALL state sales taxes

    2) Eliminate the bogus recycling tax

    No, better that we tax the poor, send all the money to Sacramento, let a handful politicians and bureaucrats manage it, then send it back to the poor in the form of food stamps and other bureaucratic programs.

    I am on food stamps. You know what a friggin hassle it is to go through the whole process?

    Also, have you ever visited your “free” local county health clinic?
    Here’s some advice:

    Go try it.

  8. queeg says:

    You get emails for ranting on the rich….a Brown favorite….poster boy for Jerry….he loves ya!

  9. Beelzebub says:

    “I am on food stamps. You know what a friggin hassle it is to go through the whole process?”

    It can’t be that difficult. 46 million people are on them.

    I am all for helping people through hard times. But I believe people should do something in return for the welfare received by the state even if it means picking up litter on the streets and in the parks. That’s not asking too much. And no one should be paid for having babies. I see them all the time walking down the sidewalk with 3 or 4 in tow. That’s BS. They swarm the borders in their 7th month and drop their cargo in American hospitals completely on the taxpayer’s dime. And afterwards, it’s free food, housing and medical care.

    “Also, have you ever visited your “free” local county health clinic?”

    Oh stop it. People on Medi-Cal see normal doctors in the community and use established hospitals. If you qualify for food stamps chances are you also qualify for Medi-Cal.

    Again, I am not bashing poor people. All I am saying is give something back in return for your freebies. There is widespread fraud and corruption in the welfare system too – just like there is in our banking and political systems.

    The answer in America is to either be filthy rich or dirt poor. Anywhere inbetween and you’re screwed!

  10. Beelzebub says:

    “You get emails for ranting on the rich…”

    Who’s ranting on the rich? I have no problem with people who earn their money in legitimate ways. I condemn those who break laws, take trillions in taxpayer bailouts and, to add insult to injury, fleece the consumer in their daily business practices. But if you prefer to bend over and let Mr. Wall Street Bankster have his way with you – be sure to keep a firm grip on your ankles.

  11. Beelzebub says:

    Quoted from the LA Times article that rex linked above:

    “Chief Administrative Officer Miguel Santana said rising employee costs combined with flat-lining revenues have left the city in a precarious position. Even after reducing its workforce by 4,900 positions in recent years, the city faces a $222-million budget shortfall, he said, a number that is expected to rise to $427 million by 2014-15″

    So even the leeches in LA city gov make no bones about it. Employee costs are the root of the problem.

    And why do you think the revenues are flatlining? One reason is that LA County must spend $1B a year for the illegals who occupy their region. Probably half of the income earners in Los Angeles are working under the table. And as home prices continue to fall – property tax revenue will dive due to readjustments and foreclosures.

    Do you think the leeches who retire from city gov with $100k plus pensions live in Los Angeles after retirement? :D F no! They flee to Nevada, Idaho and Oregon where tax rates are much lower than in Cali.

    Villaraigosa will be exiting the mayor’s office just in time. Any idiot who takes that job deserves everything he or she gets. Raise city taxes and more producers will flee. All you will have left are illegals and gov workers and newspaper reporters.

  12. Chriss Street says:

    The flat tax is very tricky. Once you have it in place, all politicians need to do is “administratively” tick it up.
    The problem with progressive taxes is that people vote with their feet and move their “personal reidence” to a low tax state. Go to Santa Monica Airport early in the morning and watch the G-5 jets bring in the Hollywood entertainment money people. Al Gore just bought a $9 million place in Santa Barbara, but I bet it is not his official permanent residence.

  13. Rex The Wonder Dog! says:

    Schifter says:
    Hey Rex the Wonder Dog,
    You dumb dog, sales taxes hurt the poor more than anyone else. Why stop at 6 percent? Why not just put it to zero?

    Hey Bozo, did you not read my comment???? Yes the sales tax kills the poor-didn’t I say that>>>???….., and it has gone up over 35% in the last 20 years or so and Clown is trying to raise it again.

    NO, I do NOT think the sales taxshould be at “zero” like you obviously do. Just like I do not thinkt he capital gains tax should be at zero. We need a small level of taxes to pay a fair price ofr basic services only gov should handle, like cops. 6% sales tax ia A-Ok with me. But if you want 5% then I would go for it.

  14. Rex The Wonder Dog! says:

    The problem with progressive taxes is that people vote with their feet and move their “personal residence” to a low tax state.
    They would have to be “domiciled” in the state they pay taxes. That means spending more time in the primary residence than any other. While some high net worth people could do this I doubt very many would. But for me that is just a guess.

  15. queeg says:

    Rexie…relax.

    Tax will pass. BIG OIL AND BIG FOOD….up up up….and Wall Street feeds the politicans big ones while they raise your fees…

    Syria for ya???

  16. Rex The Wonder Dog! says:

    queeg says:
    Rexie…relax.
    Tax will pass.

    Nope, so sorry, wont even be close; 60% no, 40% yes. Take out the public employee votes andit is; 75% no 25% yes.

    I have $100 to back that fact of life up-you game?

  17. queeg says:

    Betting is SIN.

    The tax will pass in a landslide….the wealth transfer continues!

  18. Beelzebub says:

    And who are the financial contributors to Mr. Clown’s tax hike proposals?

    The crony capitalists, of course. The CA hospital association, the health insurance industry, the state building council and big oil.

    All queeq’s good friends! :)

    http://capoliticalnews.com/2012/01/23/brown-tax-increase-donors-special-interests-wanting-you-taxed-not-them/

  19. queeg says:

    Same ole bogeymen….

    What a deplorable existence!!!

    You forgot the BIG BOX stores cleaning wives and girlfriends out of less than standard earned wages for equvalent work and those globalist displaced out of work and the minorities…awful!

  20. Beelzebub says:

    Truth cuts to the bone.

    Join the CCC. Crusaders for Crony Capitalists!

  21. queeg says:

    Get over it already….we get it….anyone who cuts it in life is bad…..over it. Move on.

  22. Anthony says:

    Anyone who wants to “progressively tax the rich” are so damn ignorant of how the flow of money/economics works. As Malcolm S. Forbes, Jr. once said, “there’s nothing more portable than a man and his money”. QED!

  23. Beelzebub says:

    “Anyone who wants to “progressively tax the rich” are so damn ignorant of how the flow of money/economics works”

    There is no one as ignorant as he who cannot decipher the difference between fraud and profitable business practices.

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