On a crowded ballot, there is a danger that voters will overlook the grave consequences that Proposition 55 holds for the future of the state’s economy.
Prop. 55 is being sold as a $8-11 billion “tax the rich” scheme to provide “essential” funding for the state’s education system.
But Prop. 55 is really a 23% tax increase on small businesses and job creators that will serve to accelerate the flight of companies, jobs and capital out of California to lower cost locations.
“The already accelerated flight of capital out of California will reach a crescendo if this thing passes,” says Jon Coupal, president of the Howard Jarvis Taxpayer Association, who strongly opposes Prop. 55.
For example, Weebly, a San Francisco company that helps regular people build websites, recently expanded to Arizona due to significantly lower costs.
“Wages, taxes and energy cost about 25% less in Phoenix than they do in San Francisco,” according to an index of business costs produced by Moody’s Analytics, according to the Times.
In short, Prop. 55 will pile a 23% tax increase onto Bay Area start-ups and small businesses that are either already expanding elsewhere or considering relocating jobs outside of the Bay Area.
Prop. 55 re-enacts a highest in the nation 13.3% top income tax rate on small businesses, including start-ups, for another 12 years.
The tax increases included in Prop. 55 kicks in for taxable income in excess of $260,000, which will impact a significant number of the state’s small business, and the vast majority of total taxable gross income is earned by the small businesses in California.
The California Taxpayers Association estimates that the additional tax bite if Prop. 55 passes is $30,000 per $1 million in taxable income from both small businesses and individuals—a 23% increase from current law.
Many Bay Area business owners and venture capitalists also say they strongly oppose Prop. 55 because its 13.3% top income tax rate will apply to stock options, a key investment vehicle for start-ups and small businesses looking to expand.
The state’s 13.3% ultra high income tax rate is already credited as a key consideration for the “exodus” of more than 10,000 companies relocating out of California since 2008, according to a landmark report by Spectrum Location Solutions.
In 2013, immediately after the passage of the Prop. 30 tax increase, total taxable income from small businesses and individuals paying the increased 13.3% rate dropped by $40 billion or 40% between 2012 and 2013, despite modest growth in other taxpayer classes, according to the California Franchise Tax Board (FTB).
Lastly, it important to note that proponents of Prop. 55 have not been able to make a convincing case that the state’s education system needs more money beyond the 50% increase in state funding that it has already received since 2012, despite flat enrollment and no measurable improvement in results.
In 2014, the state allocated an additional $11 billion in local property tax revenues to education programs under the so-call “local control funding formula,” and there is no evidence that this money is being spent effectively since the Governor failed to require meaningful accountability measures.
Prop. 55 will not improve education, which needs more accountability, not less. Please protect our jobs and economy by rejecting Prop. 55.
For more information please visit: www.opposeprop55.com. To help defeat Prop. 55 please click here: http://www.opposeprop55.com/contribute.html
David Kersten is the president of the Bay Area-based Kersten Institute for Governance and Public Policy (http://www.kersteninstitute.org) and an adjunct professor of public policy at the University of San Francisco. Kersten is leading a small public interest campaign to defeat Prop. 55 (www.opposeprop55.com).