Taxable Talk

George Skelton of the Los Angeles Times today says, "There's a gleaming pot of gold within easy grasp of the governor and Legislature that would help them balance the state's deficit-ridden books...It is an income tax increase on the wealthiest Californians — individuals earning more than $400,000; couples making above $800,000. That's the top 1%. Their tax rate would be hiked from the current 9.3% to 11%...." Skelton says that "...[this tax increase is] a pot of gold that the Sacramento pols should have claimed long ago."

The goal of the tax increase is to fund pre-school for all 4-year olds. It's a laudable goal. Unfortunately, as I've written before it's also very misguided.

Most smaller businesses (and these are the engines of growth in California and elsewhere) are taxed through personal income taxes, not corporate taxes, because they are structured as S Corporations and LLCs. If personal tax rates go up, business costs go up. California is already one of the worst places to do business in the country. This proposed income tax increase, expected to be on the June 2006 ballot, would be a disaster for the state's economy, but a boon for our neighbors: Arizona, Oregon and Nevada.

Ah, to live and breathe the fine air of the Golden State. Of course, we're also known as the state with one of the highest (and probably soon to be the highest) personal income tax rates in the United States. And then I read about proposals to give the entertainment/film industry a nice tax break:

The California Film Commission has released a 25-page study, What Is the Cost of Run-Away Production? Jobs, Wages, Economic Output and State Tax Revenue at Risk When Motion Picture Productions Leave California, in support of proposed legislation to provide a California tax credit of 12% on wages and other production costs for movies and TV shows.

What happens when you give someone a lower tax rate? If you want total tax revenues collected to remain the same, someone's (or everyone else's) tax rates must go up.

There is no such thing as a free lunch. Unfortunately, the Governator has said that he supports the proposals.

Thanks to the TaxProf Blog for pointing this out.

California continues to lose some of its luster. As reported by the TaxProf Blog, California athletes leave for brighter, er, cheaper (on a tax basis) pastures. For those who don't remember, Californians passed Proposition 63 last November. This proposition added a 1% surtax to the state's income tax (raising the top rate to 10.3%).

So you're an athlete, making lots of money, and have a choice of living in beautiful Newport Beach or Del Rey Beach, Florida. Both have nice climates (perhaps Florida's is a bit more tropical), and both are nice places to live. And then you look at the tax rates. California: 10.3%. Florida: 0%.

At least the Democrats have given up (for this year) at increasing the top tax rate to 11.3%....

Thanks to the TaxProf Blog for pointing this article out.