Tax Reform and Blue State Panic

18 Jan 2018 3:08 PM | Anonymous

One of the benefits of the new Trump/Republican tax reform package (“A closer look at state’s tax burden”, Sunday, Jan, 14) is that it exposes the absurdity of spending and abusive taxes of California and other high tax states.  This exposure has brought on what some are calling the “Blue State Panic” as governors and legislators in “blue” states (California, New York, Connecticut, and Illinois, in particular) fear the new federal tax law will reduce federal revenue to their states, grow taxpayer anger, create new budget shortages, fuel the “need” for new taxes, and increase the movement of productive citizens out of their States to low tax States.  All are already in-play.

 The Importance of Income Tax in California.

 California has the highest and most progressive income tax in the country (high rates at lower income levels).  According to the State controller, personal income taxes are, by far, the largest source of revenue for California, accounting for 58% in 2016 (it has been as high as 65%) of ALL taxes collected by the State.  An analysis by the State Franchise Tax Board shows that the top 1% of California taxpayers by income paid 45% of the total income taxes collected and 26% of ALL taxes collected by the State.  The top 20% of taxpayers paid 90% of all income taxes collected, and 51% of all taxes.  These are the folks you do not want leaving California.

 By allowing Californians to write off state income taxes on their federal taxes, the federal government has helped California disguise its high rates and, more importantly, provided a massive federal subsidy for California’s out of control spending.  It has meant that ultimately the taxpayers of prudently run states have been paying for California’s largess.  Reducing the state income tax write off exposes these practices and puts more of the tax burden on California’s productive middle and upper middle-class citizens. 

 California’s response to the limit on income tax write-offs is the creation of a “non-profit” that Californians would be forced to “contribute” to while also paying our new road tax, new marijuana tax, higher toll fees for crossing state bridges, and the highest sales and gasoline taxes in the country.  This year’s tax planning includes growing the secret Cap and Trade tax, an attempt to add sales taxes to services and the rewriting of Proposition 13.  Nothing will satiate California’s governments desire for new taxes.

 Property Tax write-off

 If you are a California resident you have heard the whining by many Californian elected officials over Proposition 13.  This whining has become a movement to overthrow Proposition 13, first by a split roll taxation, then a full rewrite. Both would be devastating to California businesses and residents.

 In reality, the high price of housing has made Proposition 13 null and void already. High housing costs have been created by government through environmental programs/laws, inequity “solutions”, land use regulations, housing element laws, regionalization, zoning laws, permit processes and numerous fees and other charges.  The result has been the increase in housing costs that is two and a half to three times the cost of housing in other states.  Paying $800,000 for that $400,000 house doubles the property tax the homeowner pays while leaving the 1% rate untouched. Clever.

 In the meantime, government has raised the taxes and fees on everything else.  My property tax bill has fourteen other government taxes, fees and bonds charges.  These charges/taxes and the fact that most houses in California have been sold, and therefore, reassessed, more than once since Prop. 13 passed in 1978 have more than made up for Proposition 13. 

 California governments want and need high housing costs to embed and pay for a multitude of social justice, entitlement, legacy, and other programs.  High housing costs creates the “need” AND the funding for “affordable housing” programs, homeless programs, rent control, and other social programs that rob the middle class and siphon off half the money to bureaucrats to run the programs and grows the underclass necessary to benefit from the programs.  The Government made housing crisis is the engine of growth for government in California

 Reducing the mortgage write off will help bring sanity back into the housing market, make housing more available and affordable for middle and lower-class Californians and get government’s destructive presence somewhat out of our most basic need.

 Where do we go from here?

Government has been “solving” the homeless, the housing and the transportation crises for more than a decade.  The result is that all are worse than ever.

Federal government tax reform and reductions in regulations show us where to go to truly solve these problems.  January’s Federal job report shows us that unemployment is at its lowest rate in a decade and Black and Hispanic unemployment is at their lowest rate in history.  The Stock market grew more than 5000 points in 2017 (a record) and surpassed 25,000 points on the Dow and 7,000 at the Nasdaq this month (both records). 

Private construction spending hit an all-time high in 2017 (Commerce Dept. report) and U.S. Manufacturing reached record growth last year (Institution of Supply Management report), fueled by domestic business investment”. 

The path is clear.  The Contra Costa Taxpayers Association believes the creation of wealth, not the redistribution of wealth, benefits everyone.  We recommend an across the board reduction in state and local taxes and a reduction and simplification of regulations.

It is time create a robust economy and to turn this failure known as California government around.

Hal Bray

925.240.7018

Mr. Bray is President of the Contra Costa Taxpayers Association, East County Chapter. The Contra Costa Taxpayers Association is a non-profit, non-partisan organization dedicated to promoting good government at affordable cost.  Mr. Bray is also co-founder of East County Voters for Equal Protection, a non-partisan grass roots citizens action committee formed to solve the unequal funding of fire and emergency medical services existing in Eastern Contra Costa County.  


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