In part two of our discussion with Stanford Economist Professor Roger Noll, Noll tells Inside Source that California's tax system is "literally unfriendly to everyone" and "it is a terrible tax system."
Roger G. Noll, is a professor of economics emeritus at Stanford University and a Senior Fellow at the Stanford Institute for Economic Policy Research (SIEPR), where he directs the program in regulatory policy.
Noll says he does not have a bottom line for the state's recent increase in the minimum wage but an economic analysis provides findings that neither supporters nor opponents like.
He said that the issue is primarily political in nature, but economics dictates that it makes more sense to have different wage scales regionally, as opposed to a one size fits all approach for the state.
From an economic perspective, the California Legislature did get it wrong, but it was a political call because Governor Jerry Brown (D) and the California Democrats who run the Legislature represent the bottom third of the income scale, Noll conceded, noting that he understood where they were coming from.
Research shows that an increase in the minimum wage does "modestly" benefit about 90% of the bottom rungs of the state's wage earners in terms of increase wages. But the other 10% are put out of work, according to Noll.
Noll said the biggest impact of the minimum wage increase is a structural change in the state's economy which hits certain industries much harder--namely those with large numbers of low wage workers such as hotels, the food industry and agricultural industry. Of course, these same industries are stronghold for organized labor.
California's Tax System
The second part of the discussion focuses on issues with California's tax system. Noll concludes that California's tax system is "literally unfriendly to everyone" because it has very high rates applied to a relatively small base--a violation of basic economics and principles of sound taxation.
"We have constructed in California, just about a paradigm of how not to do taxation and expenditures. And I would love to see it changed," Noll concluded. Noll said change is difficult because average citizens have a difficult time connecting special exemptions with higher overall rates.
The tax system is littered with special treatments, exemptions and benefits for special interests, that drives up the rates on everyone else. The state's tax system is driven by a desire by policymakers to put in "goodies" for special interests and friends, as opposed to creating a sound tax system for everyone else, Noll said.
Noll urged California policymakers to "lower the rates and broaden the base," noting that all three of the state's major areas of taxation (i.e. income, sales, property) are characterized by differential treatment of certain groups.
Noll also said that most of the state's revenues are collected by the state and then given to local governments--which obscures accountability at the local level.
"The local governments don't have accountability," Noll said, saying that they can just blame Sacramento for all their problems.
Noll agreed that businesses have it OK in terms of their overall tax burden but get "killed" at the local level with taxes and especially "fees," which he called the "single most legitimate complaint" from businesses about the state's tax system.
Noll is author or co-author of fourteen books and over three hundred articles and reviews. His primary research interests include technology policy; antitrust, regulation and privatization policies in both advanced and developing economies; and the economic approach to public law.
Noll has also played a prominent roll in California politics over his career, having done research for the California Constitution Revision Commission in the early 1990s and has consulted to state policymakers on many occasions with the goal of improving California government over the long-term.
Inside Source is an innovative government briefing program sponsored by the Kersten Institute for Governance and Public Policy.
Related Kersten Institute Reports:
Inside Source Special Report: Stanford Economics Professor Roger Noll Says State "Pension Problem" is the "Single Biggest Public Policy Problem" in California Politics Today
Minimum Wage “Aftershock” Will Plunge CA State and Local Governments Further into Debt as Public Officials Brace for “Wage Hike Tsunami”Gov. Brown Caved Too Easily to Labor on Minimum Wage Increase, Should Have Forced Labor to Go to Voters