Comments on: Do tax hikes fix budgets?

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By: John Seiler

John Seiler — Fri, 23 Jul 2010 02:29:55 +0000

An anonymous write send me this email: “I enjoyed your article, but you fell prey to the common misconception about the 1991 tax increases – that the tax increases caused aggregate revenues to fall. In fact, tax revenues would have been much lower without the tax increases. While the tax increases did not produce as much revenue as they had been expected to when enacted, they still produced additional revenue that made a significant contribution to closing the deficit. Similarly, you assert that revenues increased a few years later because the tax increases expired – this is really explained by the resurgence of the economy. Most economists will tell you that state level tax changes are too small relative to the economy to be such a driving force….”

And he referred me to a 1993 LAO report on the matter: http://www.lao.ca.gov/analysis/1993/pandi_93_3_4.pdf#page=3

My response: He could be right. I’m going to do more research on this when I have some more time. However, I still think that avoiding a tax increase back in 1991 would have sent a strong, pro-business signal to the markets, leading to a resurgence in the economy in 1992, as it was occurring in the national economy, instead of three years later, in 1995, as it in fact did here in California.

Preliminary research shows that Texas, which has no income tax, did not see a fall in revenues in this period, despite the tail end of the national recession, whereas California did.

This is probably something that can be debated forever. And in my article, I conceded that revenues may be up this year because of the tax increases; although we’ll have to see what happens in the long term.

I’ll get back with some more comments, maybe next week.

— John Seiler

By: Kris Hunt

Kris Hunt — Thu, 22 Jul 2010 19:25:28 +0000

In my dealings with the CBP, they never met a tax they could not support.

By: DavidfromLosGatos

DavidfromLosGatos — Thu, 22 Jul 2010 18:05:43 +0000

The obvious problem is that government grows during the “good” years to suck up all the extra revenue, but is unable to shrink during the “bad” years, when the money is not there.

There may be no free lunch, but government insists we keep going out to expensive restaurants for lunch, even when we should be brown-bagging.

We continue to operate our business in California primarily based on inertia. If I were looking “from scratch” for a place to move to, live in, and operate a business, I doubt CA would make the short list. But, I agree this is not just because of high taxes (which don’t help).

Too bad, because geographically speaking, it is the best state in the union.

By: RW Dougherty

RW Dougherty — Thu, 22 Jul 2010 17:34:18 +0000

If so many companies are leaving for the reasons cited in the article, why are far more companies starting-up and staying in California.

By: EastBayLarry

EastBayLarry — Thu, 22 Jul 2010 13:34:58 +0000

Taxes cannot be considered in isolation. What other factors are involved in businesses leaving California?
Let’s look at the regulatory environment for a moment. We see from the articles here on CalWatchDog that bureacracies like CARB are causing havoc among some small businesses. We all know that Californias’ regulatory ‘standards’ are much tougher than most other states. And we know that AB32 is going to cause an even more hostile environment for business in the future.
So why *would* a business start up or stay here if it is even *posible* for it to go elsewhere?