A prevalent misconception is that, by raising taxes, our state can generate more revenue and bridge the gap, narrow our budget deficit. The problem with this theory is that, in the midst of tough economic times, taxpayers and corporations don’t possess the same ability to pay even more money to the government. Taxpayers who cannot pay the increased taxes find ways to persevere; they downsize, they trim expenses, and ultimately, they cash-in and move out of state to more affordable destinations.
Likewise, businesses that cannot afford the increased taxes seek ways to survive; they lay off employees, they eliminate products and services and, as a last resort, they close their doors and relocate to more business-friendly states. For California, the biggest problem with this unfortunate reality is that not one single taxpayer or business in the United States is packing their bags and heading to California seeking lower taxation and less government regulation. Ranked 48th in the country for our business tax climate, California is standing by watching one business after another shut its doors and move to neighboring states, or even foreign countries. The road to lower taxation and reduced government regulation is a one-way street out of California.
A second misconception is that any creative or strategic policy that a company institutes to gain a competitive or financial advantage is automatically a “loophole” that must immediately be closed. With the third most hostile business tax climate and, undoubtedly, the most over-regulated, anti-business environment in the nation, wouldn’t it make more sense to instead consider these advantages “incentives” for businesses to remain in California? Instead of condemning businesses that discover and employ strategies to reduce their tax burden, keep their doors open, and continue doing business in the most business unfriendly state in the nation, shouldn’t we be implementing policies that create incentives for business to stay here?
If California’s claim to fame is that of being the state with the most business unfriendly environment, do we really have the luxury of raising taxes, imposing new regulations, and eliminating all incentives for businesses to succeed in the midst of a recession? The obvious answer is, “No.” But, this is what is currently taking place in California’s capital.
At this time, hundreds of bills intended to increase the regulatory burden on California businesses are making their way through the legislative process. All the while, rumors run rampant throughout the Capitol that lawmakers intend to balance the budget by passing “fee increases” on businesses with a majority-vote.
This all comes on the heels of recent budget negotiations that resulted in the largest state tax increase in the history of our nation – taking more money out of the pockets of California’s consumers.
California’s Legislature is repeatedly and unabashedly telling those who create jobs in our state, “We just don’t care about you.” Our businesses are getting the message. As business after business shuts its doors and moves to neighboring states with more business-friendly policies, welcoming them with open arms—not to mention huge tax incentives—California’s revenues continue their precipitous decline. As taxpayers, reeling from tough economic times coupled with new tax hikes, do everything they can to hold on to more and more of their hard earned money, California’s revenues continue to drop.
Now, the State is left trying to balance its budget on declining revenues by again raising taxes and fees and making significant cuts to programs, while piling countless new layers of regulation onto the backs of California’s businesses.
The quickest and easiest way to recover from a recession is to stimulate the economy. We should be providing tax incentives for businesses to create jobs, cutting red-tape, and allowing taxpayers to keep more of their money. Government has the ability to encourage people to reinvest in the market by granting tax breaks, while simultaneously empowering businesses by cutting regulation and offering tax exemptions and economic investment credits. Yet, Sacramento law makers are doing the exact opposite.
When will the political elite learn from past mistakes? The Great Depression was prolonged because of increased taxes and tariffs imposed by Congress, thus discouraging long-term economic activity. The recession in the early 1990’s ended all around the nation while California was still mired in an economic slump because massive tax increases, designed to increase state revenues, served to do the exact opposite. Revenues declined even further, and it wasn’t until the late ‘90’s that California finally emerged from what should have been a short-term recession.
Tax increases, closing “loopholes,” and more bureaucratic red tape are not solutions for leading us into the next decade. Innovative and fresh ideas to encourage growth in business and jobs are what California needs to succeed now.