The efforts of California’s politicians to continually raise taxes has led to a populist revolt.
After a decade of state taxes and spending growing at twice the rate of the the economy, businesses are moving jobs to neighboring states or offshore to avoid paying high costs. Rather than addressing the uncompetitive high tax cost, the governor and state politicians have launched the Commission on the 21st Century Economy to find a way to quietly raise taxes.
The commission is charged with considering a radical revision of the state tax code that would institute a business net receipts tax. The tax is a knockoff of the European value-added tax, which is “an excise tax based on the value added to a product at each stage of production or distribution,” according to Random House.
Although these tax schemes generate significant amounts of money for welfare state politicians, their heavy burden on business has left Europe perpetually uncompetitive and saddled with double-digit unemployment.
Invisible Tax
The beauty of the value-added tax for politicians is that it is a tax nobody can see.
The commission’s marketing materials describe it as a new tax on “the value a business adds to its products and services in California.”
With it, every point of production, sales and service input is taxed; it does not matter if the product or service is produced locally or imported.
California’s taxpayers, who have had a history of revolting against tax hikes, won’t even know the money is coming out of their pockets.
Tax’s ‘Goals’
The Commission states that the tax “will approximate the benefits of services and programs utilized by the business.” The tax claims to accomplish three goals:
n Stabilize tax collection: It will reduce the state’s reliance on more volatile sources of revenue, such as personal and corporate taxes, which rely on profitability.
n Broaden the tax base: It would tax all forms of business, including corporations, subchapter S pass-throughs and sole proprietorships.
n Improve tax competitiveness: It would allow for the elimination of state sales and corporate taxes and would reduce the progressive marginal rates that tax higher earners at a higher percentage.
The net receipts tax allows politicians to escape the consequences of the tax and spend policies that have ravaged California’s economy and forced entrepreneurs and other successful Californians to relocate outside the state. This tendency is referred to in economics as “voting with your feet.”
A value-added tax gives politicians the ability to capture an invisible pound of flesh from all products and services in California, no matter where the feet reside.
The tax would definitely broaden the tax base by equally assessing a percentage tax against the rich and the poor according to their level of economic activity.
But unique to the current proposal, Californians who earn over a million dollars annually could look forward to a 21% tax cut and their working class brothers and sisters earning under $50,000 would see their tax burden double.
Worst Part
Perhaps the most frightening aspect of the tax would be the army of business police that would be necessary to monitor every transaction in the California economy.
Invariably, a new underground economy would blossom as tax cheats sell their products and services at a discount.
Lower collections would cause politicians to hike the invisible tax and unleash a new cadre of business police at the expense of privacy rights.
Speaking with one voice at the ballot box, Californians overwhelmingly rejected Sacramento’s efforts to raise taxes.
Believing taxpayers will not fight that which they cannot see, politicians are again trying to sneak in new revenue sources through novel schemes, such as the business net receipts tax.
It is time for 21st century politicians to stop looking for back-door tax increases and focus on cutting the high cost of government.
Street is the treasurer-tax collector for the county of Orange.
