Jerry Brown: ‘Governor 13.3%’

John Seiler:

A Wall Street Journal editorial headline today branded Gov. Jerrry Brown: “Governor 13.3%.” That’s the percentage California’s top income tax rate would be if he finagles voters into passing his tax hike this November.

It’s a great headline. And I’m going to use the phrase to refer to him in the future: Governor 13.3%.

The 13.3 percent tax top tax rate would be by far the highest in the country, well head of the current top states, Oregon and Hawaii’s rate of 11 percent. California’s current top rate is 10.3 percent.

Wall Street comments:

“It’s hard to believe now, but Jerry Brown once ran for President as a reformer who favored a flat tax with a 13% top federal rate. That was 1992. Nowadays in his second stint as Governor, he’s running to give California alone a higher top income-tax rate.”

That’s right. In 1992, presidential candidate Jerry Brown proposed that the top federal rate — the one paid by everybody — should be just 13 percent. (Currently in 2012, the top U.S. rate is 35 percent, although President Obama wants to jack that up to 39 percent.)

People like to say that “California is the world’s 8th largest economy,” but this is ridiculous. In fact, we’re not a country, but a state. And we compete against other states, such as: Nevada, Texas, Washington, New Hampshire and Florida, all of which have zero state income tax.

For Governor 13.3% to propose a state income tax higher than the entire federal income tax he proposed 20 years ago is absurd.

Highest Taxes

Wall Street:

“The top 1% in California pay between one third and half of all state income tax revenues, depending on the condition of the economy….

“So for the privilege of living in California, a millionaire would pay close to $125,000 a year more in income tax than someone in Nevada, Texas or Florida. A Californian earning $10 million would pay an extra $1 million or more than if she moved to a state without an income tax, or nearly $500,000 than an average tax state.

“Even Mr. Brown, in one of his saner moments earlier this year, said that relying on millionaires to pay the bills causes “more volatility” in revenue collections, which has meant “a more or less constant state” of deficits. He was right. Capital gains collections collapsed to $734 million in 2009-10 from $1.6 billion in the boom years. So why would Mr. Brown make that problem worse?”

Wall Street also made the point that Supply Side economists do: That when taxes get this high, people don’t pay them. They leave the state or country. So the government fails to collect not only the tax increase, but the previous tax that the wealthy person was paying.

Paradoxically, that means if California wants to increase revenues to the state it must make this state more enticing to taxpayers — by cutting taxes. Wall Street points this out:

“One of the last states to have a tax rate as high as California is proposing was Delaware in the 1970s. Its rate hit 19.8%. Then-Governor Pete du Pont cut the rate to 10.3% in 1979 and later to 5.95%, and after five years the state’s revenues had nearly doubled and its credit rating went from the worst to one of the best.”

Governor 13.3% used to understand that. He talked to economics Arthur Laffer, the Supply Side economist who designed Brown’s excellent 1992 flat tax proposal. He should talk to Laffer again.

Laffer has produced a new study, “Eureka! How to Fix California,” for the Pacific Research Institute, CalWatchDog.com’s parent think tank. He calls for a 5.8 percent flat-tax for all Californians.

Laffer will be launching his new new book and signing copies at The City Club of San Francisco on March 27, from 5:30 to 7 pm.

And he’ll signing his new book on Wednesday, March 28, at the Pacific Club in Newport Beach.

March 26, 2012