by David Kersten
Taxpayer advocates and small business owners are bracing for the prospect of the largest tax increase in California's recent history passing in November 2016--Proposition 55.
Jon Coupal, president of the Howard Jarvis Taxpayers Association, outlined a very strong case against Prop. 55 when he sat down with David Kersten, president of the Kersten Institute earlier this month.
"I believe that there has been a gross miscalculation about how people will react to this highest in the nation income tax rate if it goes on for another 12 years," Coupal stated.
"The already accelerated flight of capital out of California will reach a crescendo if this thing passes," Coupal stated.
Prop. 55 increases income taxes on small businesses, job creators, and individuals by 23% to a 13.3% top income tax rate--the highest in the nation.
Critics charge that Prop. 55 represents a "broken promise" because it extends income tax increases that the Governor and Legislature promised would only be temporary in nature when Prop. 30 was considered and ultimately approved in November 2012.
Prop. 55 is double the size of Prop. 30, and is essentially a permanent increase which is causing quite a stir in the state's business circles because it will "accelerate the exodus" of capital and jobs outside of California, according to Coupal and other business executives.
Prop. 30 led to a steep drop off in business activity and tax revenue shortly after it passed, and most business leaders believe that Prop. 55 will have a significantly greater negative impact on economic growth and job creation in the State of California. Recent analyses by the Kersten Institute have confirmed these impacts, and found that the California economy continues to underperform the national economy by 20-40% if the Bay Area anomaly is excluded.
The most recent July 2016 jobs report found that some 76% of all the new jobs created were in Bay Area, bolstering opponents arguments that high-tech and a handful of other industries are more resilient to California's unfavorable business climate characterized by an "out of touch," far-left Legislature, strict regulation, and highest in the nation taxes.
"Prop. 55 reflects bad tax policy, and bad tax policy that will have significant negative ramifications for the State of California...This is a tax on small business," Coupal states, noting that small businesses drive 80% of the California economy and its a mistake to target these job creators for a 23% tax increase that has proven to have significant negative impacts.
Coupal cites some research, including a book titled "How Money Walks," which utilizes official tax data to show that capital flees high-tax states such as California for other states such as Texas, Nevada, and Florida, who have no income tax, compared to California's ultra high 13.3% income tax rate on small businesses and other businesses that file under the personal income tax (estimated 80% of businesses).
Coupal say California policymakers should be examining this type of data on the impacts of the state's poor business climate instead of asking "how high?" when public sector union bosses say "JUMP."
Perhaps even more concerning is that the Prop. 55 revenues will be wasted on a "broken" education system controlled by the state's public employee unions which resist any type of common sense reform to bring increased efficiency and accountability for how taxpayer dollars are spent.
"It's absolutely not necessary...There is vast amounts of waste, fraud and abuse in our K-14 education system in the State of California," Coupal stated.
"There is so much wrong with our education system right now that has nothing what to do with money. That's where the focus of our policy leaders needs to be right now," Coupal stated, adding that education has received more than a 50% increase in funding since 2012 despite flat enrollment and an inability to increase efficiencies for how tax dollars are spent.
Coupal gave the example of the public employee unions killing a bill that would have created a process for firing teachers who abuse children. "If we can't even do that we can't begin to get to the big ticket items," Coupal notes.
"California is clearly becoming more hostile to business," Coupal stated, agreeing that Prop. 55 takes the state in the wrong direction when it comes to encouraging business activity and getting the California economy back on track.
The California Republican Party is also opposed to Prop. 55 and the flight of business out of California caused by extreme left Democrat policies in California and unchecked public employee union power.
"The more power the Dems consolidate, the faster businesses sprint out of California. Over the past eight years more than 10,000 businesses have left our state--taking jobs and revenue with them," stated Senator Jim Brulte (Ret.), chairman of the CAGOP in an email to supporters earlier this month.
For more information on Prop. 55 please visit www.opposeprop55.com
David Kersten, president of the Kersten Institute, is a political commentator and expert in fiscal policy. He created the Inside Source training program to connect policymakers in California with experts in the field on pressing policy issues.