California Budget Project analysis of Prop. 30 slights slam to business, jobs

Sept. 12, 2012

By John Seiler

Sometimes the left-leaning California Budget Project produces worthy studies. Its new analysis of Proposition 30 isn’t one of them.

Being pushed by Gov. Jerry Brown and the state’s powerful government-worker unions, Prop. 30 would increase sales and income taxes taxes by from $6 billion to $8.5 billion a year. Supposedly the money would preclude cuts in K-12 and college education. But there’s no guarantee the higher taxes wouldn’t go toward the state’s burgeoning pension costs for retired government workers. All government money is fungible. These increases would allow cuts in other areas; which in turn would free money for the lucrative pensions.

The CBP analysis blithely ignores most of these problems. But the main problem is an economic one: It does not acknowledge that $8.5 billion siphoned from the private economy would severely slam the private sector, killing businesses and jobs.

The study does print one opposing argument, but only in a brief section at the end. And the arguments are not answered. It notes:

“Opponents of Proposition 30, including the Howard Jarvis Taxpayers Association, Sacramento Taxpayers Association, Small Business Action Committee, and National Federation of Independent Business/California, argue that the measure allows Sacramento policymakers to “raise taxes instead of streamlining thousands of state funded programs, massive bureaucracy and waste.”

“They contend that the measure would hurt small businesses and cost the state jobs.”

Otherwise, for the CPB study — the impression almost anyone will get — is that’s all California sunshine and Floribunda roses for everyone except the “1 percent” who will pay for the party.

The study reports:

“The wealthiest 1 percent of Californians — those with annual incomes of $533,000 or more — would contribute more than three-quarters (78.8 percent) of the revenues raised by Proposition 30’s tax increases, while the top 5 percent of Californians — those with annual incomes of at least $206,000 — would contribute 81.2 percent of the revenues raised.”

It’s worth pointing out, which CPB does not, that someone making $206,000 a year is not “wealthy,” although certainly well off. California is so expensive that an income of that amount here is the equivalent of something like $100,000 in Arkansas or Michigan. It’s barely enough to pay the already existing massive taxes, a sky-high mortgage and private-school tuition to get your kids out of the failing California schools.

Killing jobs

But even for those who truly are wealthy, say making $1 million or more a year, this tax is bad. Because these people use their incomes to re-invest in businesses, creating new jobs. Take away billions more dollars of that money and the state inevitably will have fewer businesses and jobs.

Two examples prove that, neither cited by the CPB, even for refutation. In 1991, Republican Gov. Pete Wilson, along with the Democratic Legislature of that day, increases taxes $7 billion a year. Far from solving a budget-deficit problem, it made the problem worse. General-fund revenues actually declined, by $2 billion to $40 billion, from fiscal year 1991-92 to 1993-94. And revenues didn’t recover until after the tax increases expired, going to $46 billion in 1995-96.

You can read the numbers for yourself. Open Gov. Jerry Brown’s own January 2012 budget proposal and scroll down to Schedule 6, page Appendix 12 toward the end.

Then there’s recent evidence from Great Britain. The Wall Street Journal reported:

“Preliminary figures out this week show that Britain’s 50% top marginal income-tax rate may have reduced tax revenue from top earners by as much as 5%, compared to the old 40% top rate. Tax revenue from those filing self-assessments due January 31 was down some £500 million versus last year.

“What this week’s numbers teach, however, is that Britain’s richest taxpayers are simply shifting their incomes, or themselves, offshore, or deferring income, or otherwise arranging their affairs to avoid the confiscatory new top tax rate. Maybe that’s unfair, too—the rich are usually better at protecting their assets—but it’s the predictable consequence of a tax rate whose animating purposes are envy and spite.”

So there’s no guarantee that Prop. 30 even will raise revenues; it could retard them.

The rich will flee

The CPB nowhere acknowledges that rich people obviously are the most highly mobile folks around. They can jump in their Mercedes and Cessnas and move to their houses in other states and countries. Their tax accountants can tell them how long they can stay out of California to avoid paying income and capital-gains taxes here.

If this tax passes, many rich people simply will permanently leave the state in disgust. That’s already happening. One of the Facebook co-founders, Eduardo Saverin, left America earlier this year for low-tax Singapore. The latest from Reuters:

“Facebook co-founder Eduardo Saverin, who renounced his U.S. citizenship earlier this year, made his debut on a Singapore rich list published by Forbes Magazine.

“Brazilian-born Saverin, 30, is No.8 on the list with an estimated net worth of $2.2 billion.

“Saverin has been living in Singapore since 2009 but only gave up his U.S. citizenship ahead of Facebook’s initial public offering.”

This happens all the time. If you’re a rich person, why be robbed by California’s potential 13.1 state income tax, which then would be the highest of any state, on top of a potential 39 percent federal tax if President Obama and congressional Democrats have their way? That’s a total of 52.1 percent. All for the privilege of living in a country, the United States, that abuses you and thinks of you not as a business and jobs creator, but as a tax slave.

The CPB report blythely says:

“Nevertheless, the average household in the bottom fifth of the income distribution would see a total tax increase of just $24, and the average household in the middle fifth would see an increase of just $55. In contrast, the average household in the top 1 percent would pay an additional $21,883 in taxes.

“Consequently, Proposition 30 would take a modest step toward reducing the significant income gap between low-and middle-income Californians and the wealthy.”

They just don’t get it. How can “low-and middle-income Californians” be better off when their jobs are killed after the wealthy leave the state — and take their money and businesses with them?

 

 

 

25 comments

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  1. Rex the Wonder Dog!
    Rex the Wonder Dog! 12 September, 2012, 09:39

    It’s worth pointing out, which CPB does not, that someone making $206,000 a year is not “wealthy,” although certainly well off

    What is funny is that virtually every “pubic safety” job in CA comps, with fringes, right around or over $206K.

    Reply this comment
  2. Rex the Wonder Dog!
    Rex the Wonder Dog! 12 September, 2012, 09:44

    The CPB nowhere acknowledges that rich people obviously are the most highly mobile folks around. They can jump in their Mercedes and Cessnas and move to their houses in other states and countries.

    Very true, but even if they paid a lowly 5% they would still seek to evade taxes. Had a very good real estate broker friend who had an amazing year where he commissioned $400K- ste up a NV corp to run the commssions thru. No state income taxes. On the other hand that was a great year, there were other years where $25K was the income.

    “Facebook co-founder Eduardo Saverin, who renounced his U.S. citizenship earlier this year, made his debut on a Singapore rich list published by Forbes Magazine.
    “Brazilian-born Saverin, 30, is No.8 on the list with an estimated net worth of $2.2 billion.
    “Saverin has been living in Singapore since 2009 but only gave up his U.S. citizenship ahead of Facebook’s initial public offering.”

    Saverin is a scumbag. He is not and never was an American, he was/is a traitor to America.

    Reply this comment
  3. RT
    RT 12 September, 2012, 10:01

    Why don’t we just go to the end game and confiscate all the money that those nasty rich people have? Then once there are no more rich people, we will all be equal, poorer than dirt living in a state going bankrupt, but equal.

    Reply this comment
  4. Rex the Wonder Dog!
    Rex the Wonder Dog! 12 September, 2012, 10:19

    RT, everyone has to pay taxes, a reasonable amount, Saverin doesn’t want to pay anything. Get the big pic?

    Reply this comment
  5. Ulysses Uhaul
    Ulysses Uhaul 12 September, 2012, 12:30

    Greedy Poodle?

    Reply this comment
  6. Ulysses Uhaul
    Ulysses Uhaul 12 September, 2012, 13:34

    Poodle don’t be crass and ugly. The truth is jarring, but your emotions must be held in check…please try hard…your forgiven!

    Reply this comment
  7. Ulysses Uhaul
    Ulysses Uhaul 12 September, 2012, 13:36

    You could be like Belzeeee….never know….poof….your gone!

    Reply this comment
  8. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 12 September, 2012, 13:43

    Poodle– Please keep your tone civil with the others out here.

    Reply this comment
  9. CalWatchdog
    CalWatchdog Author 12 September, 2012, 13:48

    Rex wrote: “Saverin is a scumbag. He is not and never was an American, he was/is a traitor to America.”

    Free societies do not mind when people come or go. Only tyrannies are upset when their tax slaves depart.

    Rex confirmed which type of society we live in.

    — John Seiler

    Reply this comment
  10. Ulysses Uhaul
    Ulysses Uhaul 12 September, 2012, 16:36

    Teddy…Poodle having a hissee fit today..

    Reply this comment
  11. Soquel Creek
    Soquel Creek 12 September, 2012, 19:09

    Want to see what the California Budget Project is missing from their analysis? Click below.

    “California Proposition 30: Governor Jerry Brown’s Big-Government Tax Hike”
    http://soquelbythecreek.blogspot.com/2012/07/california-proposition-30-governor.html

    QUESTIONS UNANSWERED BY CBP PAPER:

    * How do California’s existing INCOME TAX rates and Proposition 30 tax hikes compare to income tax rates in the other 49 states?

    * Why does the CPB analysis ignore Proposition 63? How does that affect California’s tax rates.

    * How do California’s existing state SALES TAX rates and Proposition 30 tax hikes compare to state sales tax rates in the other 49 states?

    * From whom does California derive most of its income tax revenues?

    * Whose incomes dropped the most, and consequently their taxes, after the 2008 subprime mortgage crisis?

    * How do California’s tax rates affect our business climate?

    * How does are tax and business climate affect California’s unemployment rate?

    * Who are the biggest funders of Proposition 30?

    * The recent executive director of California Budget Project worked for which major funder of Proposition 30? Okay, that not on the link above. SEIU is one of the major funders of Proposition 30. Jean Ross, who was executive director of CBP until March, worked for SEIU.

    Reply this comment
  12. Rex the Wonder Dog!
    Rex the Wonder Dog! 12 September, 2012, 21:07

    b>Free societies do not mind when people come or go….. Only tyrannies are upset when their tax slaves depart.
    ……Rex confirmed which type of society we live in.
    – John Seiler

    #1- If you want to LIVE here and reap the REWARDS then you have to pay into the common pie that makes us all a society. If not-fine, split and don’t let the door hit you in the butt on the way to Singapore. But don’t expect to come back.

    #2- Tax slave??? Please. John, do you think there should be some level of taxation to maintain core functions of society or not? Yes or no.

    #3- Last, don’t try to fit me into a predetermined box, I am about as open to reason as anyone here 🙂

    Now go pick on Teddy or one of his gimmick accounts…….

    Reply this comment
  13. Ulysses Uhaul
    Ulysses Uhaul 12 September, 2012, 23:00

    Reason?

    Reply this comment
  14. Ted Steele, The Decider
    Ted Steele, The Decider 13 September, 2012, 06:41

    Poodle– relax little buddy—-is there any oxygen out there on the fringe?

    Reply this comment
  15. Ulysses Uhaul
    Ulysses Uhaul 13 September, 2012, 08:03

    Teddy…the readership is very restless. We must contain ourselves and shun the Poodle!

    It is a sacrifice, but someone has to do it….

    Reply this comment
  16. Sean Morham
    Sean Morham 13 September, 2012, 10:30

    My gparents came to usa before WW1 from tolitarian countries. Freedom of religion and opportunity was the draw. They accepted rich people, and worked/saved to buy a home. Their children were assortment of factory workers, bar owners, housewives who accepted rich people were rich and went about their business. Their kids went to college and became Engineers, Accountants, Doctors, Lawyers, Social Workers, Teachers etc.. Some of us fall into the rich folks category, that some think (like Moonbeam)are screwing the rest of society and need to pay a price in higher taxes. I tell my kids some think they are privilged because both parents went to College and are comfortable(they hear it). They know it and will adjust, and understand that the California they are growing up in, is different. They may leave for opportunity. I look around me and see what will replace them, many are far removed from the backbone of my gparents. Frankly, many are pieces of shit.

    Reply this comment
  17. queeg
    queeg 13 September, 2012, 10:54

    Ugly…..whew…..

    Reply this comment
  18. a frequent reader
    a frequent reader 13 September, 2012, 14:12

    The absence of intelligent rebuttals abounds from the typical libs here. Your resistance to reply to such petty posts is applauded Rex. Your posts on the other hand are shared among the rightly minded readers herein.

    Reply this comment
  19. Hondo
    Hondo 13 September, 2012, 15:34

    I’m worth around 50 bucks and Bill Gates is worth around 50 billion and I’m proud of him. Someone from my generation is on top of the world.
    Now if he would just loan me around 3 grand, I gotta get a few crowns for my teeth.
    I guess I could wait for Obamacare to kick in.
    Hondo…..

    Reply this comment
  20. Ted Steele, The Decider
    Ted Steele, The Decider 13 September, 2012, 20:15

    Irony— Hondo’s best chance for better health acually IS Obamacare ™ !!

    Reply this comment
  21. Ted Steele, The Decider
    Ted Steele, The Decider 13 September, 2012, 20:15

    i mean actually.

    Reply this comment
  22. Ted Steele, The Decider
    Ted Steele, The Decider 13 September, 2012, 20:15

    …and Obama DOES care!!!

    Reply this comment
  23. Douglas
    Douglas 13 September, 2012, 20:32

    Apparently John Seiler does not understand the principle of ‘ceteris paribus’. Two examples do not ‘prove’ anything. Correlation does not imply causation. Google the Center for Freedom and Prosperity to see an explanation of the Laffer curve and how it is so widely misunderstood.

    Yes, government money is fungible, but the pension costs will be paid whether or not prop 30 passes, and funds for schools will absolutely be reduced if it doesn’t. So the ‘new’ tax money will NOT go to ‘lucrative pensions’. And the ‘burgeoning’ pension costs have already been reduced by $400 million a year due to workers contributing a larger share toward pensions.

    Reply this comment
  24. CalWatchdog
    CalWatchdog Author 14 September, 2012, 08:17

    Douglas: Of course I understand “ceteris paribus” (“with all things the same”). But this is a short article, not a textbook on economics. What I obviously was doing was pointing out that the CBP didn’t even mention, except briefly in quoting the opposition at the end, that the tax increase might not work out exactly as expected.

    And you are wrong about the pensions, even for those already retired. There’s no way to pay all of the $500 billion in unfunded liabilities.

    As to the pension reform bill just passed, CalSTRS and CalPERS, combined, estimate savings of just $78 billion — leaving $422 billion still outstanding.

    Link: http://www.pe.com/opinion/editorials-headlines/20120905-state-pension-nudge.ece

    Meanwhile, that fool Bernanke is making everything worse by causing more inflation. Tax increases will hit at the federal level on January 1. And the $16 trillion debt keeps increasing.

    Ceteris paribus, we’re in for a lot of pain caused by government.

    Reply this comment
  25. Douglas
    Douglas 14 September, 2012, 20:34

    You know the $500 billion you quote is an extreme estimate, even when it was first promulgated at the bottom of the market. The link you provided cited $165 billion. Still a lot of money, but the unfunded liability is being paid down with about an extra 5% on top of the ‘normal’ pension cost. Not just in California, but in many states, pension costs are roughly 3% of budgets, and relatively minor increases will bring them up to par.

    My main concern, however, is that I see on these boards and in other media, repeatedly, the claim that increasing tax rates ALWAYS reduces tax receipts, and vice versa. It simply isn’t true.

    You are correct. This article is not an economic text. It is a hit piece with half truths and exaggerations.

    Like a 52% tax rate? You know it isn’t really, because state taxes are deductible from federal tax. And since this is not an economic text, we don’t have room to mention that this is the MARGINAL rate. Yes, l assure you some people believe that a taxpayer who earns $300.000 will pay $150.000 in taxes instead of the $40,000 or less he actually owes.

    Like the CBP you criticize, your entire article is slanted and misleading.

    Reply this comment

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