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If Trump wants to reform tax code, he should not look to California

If Trump wants to reform tax code, he should not look to California

George Runner


POSTED September 27, 2017 9:09 a.m.
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The president rightly wants to reform America's tax code.

Our nation's ever-growing list of tax laws burden the average American, and our world-leading corporate tax rate makes it harder for homegrown businesses to compete globally, putting our country at an economic disadvantage. This means fewer jobs for everyone.

With the various taxes on savings and investment income, there are some estimates that a person could pay a tax rate greater than 50 percent when all is said and done. These taxes effectively discourage people from storing away money for the future and investing in our economy.

Reforming our tax code won't be easy.

However, if you're the president, you should know there's a blueprint on what you shouldn't do when it comes to tax reform, courtesy of California's so-called "progressive tax" structure, which has punished the state's middle class and has driven nearly 4 million people to greener pastures.

This year, Californians are already on track to pay a whopping $83 billion in state income taxes, which accounts for roughly 69 percent of the state's general fund. Is it any wonder California has the highest poverty rate in the nation? Californians at every income, including the most vulnerable, should be able to keep more of their hard-earned income.

Our state also unfairly targets job creators.

According to the latest data available from the Franchise Tax Board, California's high earners paid 47.6 percent of total state income tax. For those eager to invest in our economy, California also taxes capital gains at a high rate, discouraging investment, which also means fewer jobs for everyone.

Since California relies too heavily on volatile tax streams, our state routinely experiences extremely large budget deficits during times of recession. To make matters worse, according to the Hoover Institution, during these downturns, legislative Democrats usually turn to more tax increases, further exacerbating the issue.

Ironically, the same progressives who spurn the idea of tax reform for all Californians, including high-earners, leap at the opportunity to give tax breaks to their buddies in the film industry. The message is clear: You're only eligible for tax relief if you come from big Hollywood and have the ability to write hefty campaign checks.

That's crony capitalism at its finest.

Even "sincere" attempts to make California more business friendly end up as a financial boon for state government.

Take, for example, when the governor eliminated California's Enterprise Zone Program in 2013. The program wasn't perfect, but the 42 enterprise zones provided economic incentives aimed at spurring job creation and investment in economically distressed areas of the state.

The program was replaced with an "Economic Development Initiative" that consisted of sales tax exemptions, hiring credits and an income tax credit. But, early returns of the new program show the net result is that Californians have already paid $1.2 billion more in taxes to state government.

That's a shame.

Many in the media have suggested national tax reform could harm Californians by eliminating several deductions. That may be the case; however, California's leaders could proactively make the needed changes to our state's tax code, but there's clearly no political appetite.

Perhaps changes at the federal level would inspire California politicians to create a tax code that would benefit all Californians. And if those reforms are good, maybe then our government leaders could hold up our state as an example of how to reform taxes.

Until then, those looking for ideas on tax code "reform" can skip right over the state.

George Runner is an elected member of the California State Board of Equalization. He may be reached at george@boe.ca.gov

 

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