Taxable Talk

Earlier this week I posted an advertisement from the Nevada Development Authority. The Los Angeles Times had an article today noting that Democrats in Sacramento are unhappy with the advertisements that portray California as a tax-happy state. Of course, Democrats in Sacramento are arguing for more taxes.

Somer Hollingsworth, President of the Authority, told the Times, "We can see what is going on in California as far as businesses are concerned...They've got workers' comp issues, a $16.5-billion deficit, employee retirement funds that are out of whack."

State Senator Mark Ridley-Thomas (D-Los Angeles) told the Times, "Businesses are here because they appreciate the powers of this economy...I suspect Nevada wishes it could be ranked as among one of the top economies in the world."

Perhaps the Democrats in the Legislature would like to talk with some of my corporate clients who are again contemplating leaving the Bronze Golden State because of high taxes and too many regulations. Maybe Nevada won't be the destination, but if California tries to close the deficit on the back of businesses other states will benefit. State Senator Ridley-Thomas is naive if he believes that taxes can increase forever without businesses reacting.

With California having a $16 billion deficit, and the Democrats in California's Legislature saying that the only solution to the problem is to increase taxes, it was only a matter of time until the Nevada Development Authority struck. Here's their latest print advertisement:



My advice to the Democrats (and Republicans) in the Legislature: Increasing taxes will increase the Nevada Development Authority's business.

Political theater occurred last night in Sacramento. The Assembly held a rare evening session, and the Democrats' oil tax fell to defeat 45-30 (it needed a 2/3 vote to pass). The vote was party line, except for one. Assemblywoman Nicole Parra (D-Bakersfield) voted no.

The Democrats framed the issue as "Save our children, tax the rich low-taxed oil companies." Republicans called it political theater. Democrats want to increase taxes; there's no room in the budget to cut spending. Republicans want to cut spending; there's no room in taxpayers' pockectbooks to pay for additional taxes.

I think it's well worth remembering these two themes as we vote this year. Over the last four years spending increased 44% while revenues increased 40%. I think that's food for thought.

As expected, Assembly Democrats introduced AB9. It would add a 6% tax on oil drilling and a 2% tax on oil profits that exceed $10 million. Because it's a tax the measure requires a 2/3 vote for approval—and it won't get that.

Assemblyman Chuck DeVore (R-Irvine) told the San Jose Mercury, "It's just bad political theater. If this bill ever made it into law, it would increase the cost of gas at the pump and . . . increase our reliance on foreign oil from places like Venezuela and Iran."

Fortunately, Democrats don't have the votes to pass this measure. You can follow the progress (or lack thereof) of this measure here. State Senator Tom Harman (R-Huntington Beach) has an excellent commentary on what truly ails California. I doubt the Democrats are listening.

The joy of being a Californian. The gas stations at Culver and Walnut in Irvine are having a price war—they're seeing which station can reach $3.60 for a gallon of regular first. And if the Democrats in California's Assembly have their way we'll be paying even more.

Assemblyman Anthony Adams (R-Claremont) reports on the Flash Blog that Assembly Speaker Fabian Nunez (D-Los Angeles) wants to add a 6% tax on all oil from California and a 2% surcharge on oil companies that earn more than $10 million.

I wonder if Speaker Nunez has interests in office building in Nevada, Arizona, and Oregon. Why am I asking this? Because if I were running an oil company and I was faced with a gross profits tax I'd relocate as much as my business as possible out of California and into neighboring states.

And does Mr. Nunez understand basic economics? What does a tax do? It increases the price of a good or service. When a business is taxed it always passes the cost of the tax onto its customers. If this tax increase passes Californians will see a 2% to 10% increase on the prices of products from oil companies. That's economic reality.

While the goal of Mr. Nunez's proposal is laudable (the money would be used for education), I agree with Assemblyman Adams. "I guess the $60 Billion plus a year we spend on education isn't getting the job done. Here's a thought: Give the school districts back the money we already take instead of tying it up in countless layers of State bureaucracy and ridiculous 'one-size-fits-all' testing standards that force every teacher to teach to the test."

California needs fundamental reforms in the bureaucracy. It may be painful, but the time has come to seriously confront the bloated workforce of government workers in this state. It's time for limited government, and it appears that at least some in California's legislature understand that. Unfortunately, Assembly Speaker Nunez doesn't.

That's the opinion of the Reason Foundation, a nonprofit 501(c)(3) organization dedicated to "advanc[ing] a free society by developing, applying, and promoting libertarian principles, including individual liberty, free markets, and the rule of law." In an article titled "California Won't Fix Budget Until It Cuts Spending" Reason notes:

"Despite what some lawmakers would like us to believe, this is a budget crisis borne of an addiction to spending, not a revenue problem. In the past four years, the state's general fund revenues have increased approximately 32 percent. In fact, total revenue has grown steadily since the early 1990s, shortly after major tax increases were imposed under Gov. Pete Wilson's administration...

"It is time for Californians and their elected representatives to undertake a serious re-evaluation of the proper role of government. Government has simply gotten too big and too intrusive. The casualty is individual liberty. Only when we rediscover the truth of the maxim - 'That government is best which governs least' - will we be able to restore any fiscal sanity to our state government."

Any bets on our legislators listening? I for one am not hopeful.

The tax rebates (aka the stimulus payments) that will be issued beginning in May won't be taxed by California. The Franchise Tax Board announced this last week. The FTB notes (as has the IRS) that in order to claim the rebate you must file a federal tax return. You do not have to file a California tax return in order to claim the rebate.

A few states will be taxing the federal tax rebate. Generally, those states give a deduction for federal tax paid. Alabama and Louisiana are two states that I believe will be taxing the federal tax rebates.

An interesting question is whether California government employees are overpaid. We can now find out. Thanks to the Sacramento Bee we can now find out. The Bee has a searchable database of California government employees so we can now find out exactly what our government employees actually make.

If you're a California resident (and taxpayer), you may want to buy a padlock. A big padlock. That's because Democratic legislative leaders have resolved that the only solution to the budget crisis is to increase taxes.

Senate President Pro Tem, Don Perata (D-Oakland) told a news conference in Sacramento when asked how the budget deficit will be made up, "Raise taxes. That clear enough? Raise taxes." I applaud his honesty though I disagree with the message.

Meanwhile, Jim Batten (R-Palm Desert) told the Flash Report, "If last year's Democrat rage at the Senate Republicans refusing to vote for a budget until spending was reduced by just $750 million is any indicator of what we're in store for this year, I'm going to start wearing body armor to work."

We may need to start a pool on when the state budget will be finalized. I think the only certainty this year is that it won't be done by July 1st (the constitutional deadline).

What's the difference between a tax hike and the elimination of a deduction? In politics, everything. For the taxpaying public, the impact is the same. We're talking words or nomenclature.

It appears that some legislators in Sacramento are considering eliminating the mortgage interest deduction for state tax returns. While I don't expect that to pass, I do believe we'll see a few tax hikes when a budget finally passes in Sacramento this year. Please don't ask me what they'll be—it's way too early for that—but do realize that Democrats don't want to cut any programs. This editorial in the Los Angeles Daily News sums up the problems with eliminating tax deductions.

Thanks to Kerry Kerstetter for pointing out the editorial.

Remember Gilbert Hyatt? Mr. Hyatt is the inventor who fled the Bronze Golden State seeking lower taxes. He filed a lawsuit against the Franchise Tax Board alleging that the FTB "...directed “numerous and continuous contacts … at Nevada” and committed several torts during the course of the audit, including invasion of privacy, outrageous conduct, abuse of process, fraud, and negligent misrepresentation." This case was filed in 1998 and will finally go to trial in April.

Why did it take so long? Because the FTB claimed that it was immune from the lawsuit. That issue was litigated up to the US Supreme Court which ruled that the lawsuit could go forward.

We got some more news about the case in a roundabout way. The Las Vegas Review-Journal reported last week that the Clark County District Court is modernizing its computer system so that only sealed information is withheld from online computer records. Previously, if any information was sealed in a case all of the records were sealed. The first case chosen to see the public light was the Gilbert Hyatt case.

Everyone seems to be happy about the additional information becoming available. I am pleased because the Hyatt case is one where the FTB is alleged to have overreached and it will be interesting to see what happens when the case is tried.