Taxes Up – No Need for Increases

John Seiler:

A month ago, I was the first to point out that ongoing tax cuts in California were producing a better economy — which included increases in tax receipts. I wrote:

Another factor is marginal tax rates. At some point, tax rates become so high that people stop certain economic activities. That point differs with different people.

Conversely, at some point, tax rate cuts generate more activity. If the taxes on that $30,000 car are cut by $450, it well could make affordable something that previously was beyond your reach.

The additional economic activity, in turn, actually generates taxes — even at the lower rates. That’s because, unless the purchase is made, the car dealer doesn’t get the sale, so he doesn’t pay the business tax. The salesman doesn’t get a commission, and so doesn’t pay income tax on the commission. And the sale, not being paid, doesn’t pay any sales tax at all.

More proof keeps rolling in. On Jan. 1, ex-Gov. Arnold Schwarzenegger’s 2009 income-tax increase finally expired. And on July 1, his other tax increases — especially those on sales — also expire. So, here’s what’s happening, reports NBC LA:

According to the state controller’s office, California is running about $4 billion ahead of projected personal income tax revenues for 2010-11. That’s important because personal income taxes represent slightly more than half of all state generated receipts. Sales taxes, which account for about 25 percent of all revenues, are also running slightly ahead of projections.

Get that? Even though income tax rates were cut, income tax revenues increased. As I explained above, that’s because the greater economic activity caused by the rate cuts broadened the tax base. With more business activity, more could be taxed.

The $4 billion in added revenue means the $12 billion budget gap that Gov. Jerry Brown’s tax increases are supposed to close now is $8 billion. And if the economy keeps expanding, then that gap would close even further.

But if taxes are increased, then the economy will crash and the new tax receipts won’t come in.

Some day, Gov. Brown, Democrats and union bosses are going to have to realize that jobs creation — through improving the state’s horrible business climate — must be the first order of the day. And tax increases only kill jobs.

May 6, 2011