LA Times Columnist Perturbed Californians Reject Higher Taxes

Californians just used the democratic process to vote down a series of proposals that would have raised taxes in certain areas. Proponents, namely Republican Gov. Arnold Schwarzenegger, argued those increases would cure the state’s budget deficit woes.

But the propositions’ defeat upset Los Angeles Times columnist Michael Hiltzik who criticized Schwarzenegger for not successfully convincing voters to raise taxes

Hiltzik wrote in his May 21 column that the notion California has high taxes is a lie and ripped into Schwarzenegger for missing a “golden opportunity to give Californians the truth.” The truth according to Hiltzik was that Californians don’t pay enough taxes.

“The most onerous lie is that Californians are burdened by the highest state taxes in the nation,” Hiltzik wrote. “The truth, according to 2006 figures derived from the U.S. Census, is that as a percentage of all personal income, California's tax and fee schedule ranks 18th in the country.”

However, as the Heritage Foundation’s blog The Foundry observed, the tax burden is a little more complex than Hiltzik let on. Conn Carroll said in a May 21 post the deficit problem in California isn’t about paying too little in taxes, as Hiltzik suggested, it’s that the government is spending too much:

In other taxing categories, California either leads the league or is in the top 10 nationally, including:

    Corporate Taxes - California has the highest corporate income taxes in the West. Even Apple, the star of California’s technology economy set up a company in Nevada to avoid the state’s high tax rates. Only seven states have higher corporate rates.Income Taxes - California has the most progressive tax scheme in the country including the second highest rate in the nation for those making more than $1 million.Sales Taxes - California enforces a number of sales taxes including a general sales tax, a gas tax, and a cigarette tax. Overall California has the 13th highest state and local sales tax burden in the nation.Total Tax Burden - According to the Tax Foundation, once all state and local taxes are taken into account, Californians face the nation’s 6th highest tax burden.

So if low taxes are not to blame for California’s huge deficits, what is? Spending.

Hiltzik also claimed higher taxes would not scare away investment in the state because the wealthiest don’t actually pay their “fair share.”

“Then there's the canard that we unfairly soak our rich. This is supposedly a no-no, because the rich might flee, taking with them their sterling job-creating potential,” Hiltzik wrote. “The dirty little secret, according to Citizens for Tax Justice, a left-leaning nonprofit group, is that California's wealthiest residents shoulder the lightest burden of any income group in the state. The top 1% of California income-earners (average 2007 income: $2.3 million) paid 7.4% of their income in various state taxes last year, counting the federal deduction for state taxes. The highest rate was paid by the poorest residents. Those earning $20,000 or less, with average income of $12,600, forked over 10.2% of their earnings in sales, excise, property and other levies.”

There is evidence that contradicts Hiltzik on that point and suggests that California and other high income tax states are being penalized for their tax rates. An op-ed in the May 18 Wall Street Journal by Arthur Laffer and Steve Moore noted tangible proof that higher taxes are driving people to states with lower taxes.

“Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas,” Laffer and Moore wrote. “We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.”