Long Goodbye to the Middle Class

MAY 12, 2011

The middle class of California is deteriorating right before our eyes. And at the current pace of destruction imposed by the state’s lawmakers, it won’t be long before the gap widens between the ruling government class and the taxpayers.

There is no great mystery why the middle class is headed the way of the dodo bird.

Just as Karl Marx hated the middle class for aspiring to upper-class riches, lawmakers in every level of government view employers and business owners as the state’s personal checking account. And because most small and medium sized businesses are owned by middle-class people, they are the target.

Marx saw himself and other Communist Party leaders as rulers of the lower class. The Ruling Class would own all property and keep all wealth in a society, and the large lower class was ruled by those better suited for leadership.

But this didn’t happen immediately – the transition period to Communism was “Socialism,” where the lower class didn’t have to immediately forgo property ownership. Instead, property was slowly and painfully yielded through taxing, and schemes for other transfers of wealth. Because the ruling class was the government, and government made the laws, government control was inevitable.

Welcome to California where the air is regulated, the ocean is off limits, the roads are deplorable, the schools are failing and once-productive people are succumbing to the will of the government for a piece of the entitlements.

And it’s all being done to buy votes from the growing “lower class.”

Gov. Brown’s Tax Increases

Currently, Democratic Gov. Jerry Brown is trying to balance the budget by increasing taxes on the middle class, the rich and businesses. Instead of substantially cutting government, which is what really needs to happen, the Democratic governor and legislators continue to propose taxing schemes, regulations on businesses, and more government expansion, refusing to even consider shrinking government.

The majority party and state government already view business as something to regulate, restrict, degrade and control. They don’t admit that business supports California’s economy through the payment of cumbersome corporate, individual, property and use taxes — and by hiring employees, who then also contribute to the taxing structure of the state.

This is not the state of the have’s and have not’s. California has become the state of the makers and the takers. On the one hand, there are the fiscally conservative and responsible, who work and save money for rainy days, home purchases, cars and college. On the other hand are the leftists and bottom feeders who feed upon the makers, and regulate businesses in order to receive all of the same things, but instead from the government.

Instead of acknowledging that business owners are the solution to the state’s unemployment problem, California legislators continue to pile on the regulations, taxes and fees, and are attempting to add impossible impediments to businesses.

Every tax and fee imposed by the state of California is designed to hit the middle class. Large corporations and the very wealthy can move their money offshore in order to avoid state and federal taxes (which is how General Electric has avoided paying what it should to the federal government). But the average entrepreneur, land owner, boutique or shop owner, and small manufacturer doesn’t have large bank accounts or enough profit to invest in anything other than the business or property they own.

Who Is The Middle Class?

As manufacturing disappears in California, so does the middle class. Manufacturing jobs pay better than service jobs, and usually come with health benefits and retirement plans. And manufacturing has always allowed employees with only a high school diploma to rise up through the ranks, enjoying success through hard work and perseverance.

The cost of doing business in California is much higher than other states, and the middle class is leaving the state to follow the better paying jobs and opportunities, in order to keep more of their income.

Compared to Texas — which, admittedly, most of us are getting tired of hearing about — the costs of land, energy, wages and taxes are just too high for many businesses to bear. California business still pays higher overall wages, but the cost of living is so much higher in the state, that many employers and business owners are opting to relocate or expand in other states where the dollar goes much farther.

California’s tax burden is much higher when compared with neighboring states. Using tax statistics from Oregon, Washington, Arizona, Nevada, Colorado and Texas, California reports the following: the third highest personal income tax, one of the highest corporate income taxes, the highest gasoline tax and sales tax, and still a very high property tax despite Proposition 13.

Each tax might not seem insurmountable looked at independently. But lumped all together, California’s cost of doing business is not only unreasonable, it is unbearable.

California ranks as the second worst state in the country for business taxes because of “complex, non-neutral taxes with comparatively high rates,” according to the non-partisan Tax Foundation’s 2011 State Business Climate Index.

The Small Business and Entrepreneurship Council rates the best and worst states for business tax, and California came up quite poorly in 2011.

Coming in 48^th place, California’s rating was calculated using 18 different factors to measure placement, including:

* The state’s top personal income and corporate tax rate;

* The state’s top individual and corporate capital gains tax rate;

* Whether or not the state imposes an alternative minimum tax on individuals and corporations;

* Property taxes;

* Consumption-based taxes (sales, gross receipts and excise taxes);

* The death tax;

* Unemployment taxes;

* Whether or not the state has a tax limitation mechanism;

* Whether or not the state imposes an Internet access tax (which California is trying to pass);

* Gas tax and diesel tax;

* Wireless taxes.

SBE Council chief economist Raymond J. Keating, explained:

The policies implemented often work against small businesses, despite the nice talk nearly all politicians serve up about small business.  The National Conference of State Legislatures reported earlier this year that state legislatures have increased taxes and fees for the ninth consecutive year as they worked to shore up state budgets. Unfortunately, tax increases, along with new and expanded regulation, do anything but shore up a state’s competitiveness.

Slamming Entrepreneurs

The entrepreneurship council reported that, in addition to California’s many high tax rates, the state has the highest gas and diesel taxes, poor private property protections, invasive business regulations, a large number of health insurance mandates, high electric utility costs and high workers’ compensation costs. All of these things which only serve to undercut business and prevent growth and competition nationwide.

The average small and medium-sized business in California is faced with workers compensation costs, sales taxes, a personal property tax on equipment, an inventory tax, the state income tax, Board of Equalization use taxes, property taxes on land and a depreciation schedule that is much more aggressive than the federal depreciation schedule.

These invasive business taxes and impediments drastically need to be reformed.

Rarely does any legislator add up the total tax consequence for businesses operating in the state. But it’s hefty and at the very heart of the demise of the middle class.

With the steadfast denial and refusal by the majority party in the state to enact massive economic reforms, it appears that they know exactly what they are doing, and it’s eerily reminding me of history lessons about Karl Marx.

And as our tax base recedes, California politicians and government leaders will look to other sources of funding to keep the state operating – new and higher taxes, and private property and retirement accounts will be vulnerable.

Why else would the California Teachers Association and other labor unions push the governor and lawmakers to pass the governor’s tax extension proposal without a vote of the people? We already know the answer.

— Katy Grimes