The Los Angeles Times today editorializes that the way for California to escape the budget crisis is to tax services: “Lawmakers cannot act in a fit of panic, but the scope of this year’s challenge should encourage new solutions, including service taxes.”
On the contrary, instead of looking for new taxes California should really look outside of the box and cut or eliminate current taxes. I can just imagine the Times reading this and thinking I’m nuts. I’m not.
California has spent itself into this problem; we’re going to have to drastically cut spending. Some state employees are going to lose their jobs but they really should never have been hired in the first place.
What will happen if the state imposes a service tax? It will cost small employers–more bureaucratic paperwork to deal with. I’ll have to increase my fees to cover the costs. That will lead to fewer sales–if price increases and demand is steady, the quantity sold will drop (basic economics). The amount of money raised by the new service tax will be less than what will be projected.
As of today Republican leaders in the State Legislature are holding firm on no new taxes. It figures to be a long summer of the press and Democrats (and possibly the Governator) asking for new taxes and Republicans shooting those proposals down. At least I hope that’s the scenario that plays out.