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Alice Khosravy: State taxes increase: Now what?

Posted: November 16, 2012 2:00 a.m.
Updated: November 16, 2012 2:00 a.m.
 

As California voters surface from the frenzied atmosphere of the recent election cycle, the ramifications of our choices are already beginning to prove that we will not escape the consequences of ignoring the simple truths of basic economics.

Proposition 30 will prove to be the perfect test case. Parents and educators all over the state were relieved that it passed as they hope it will be a way to restore funding that was foolishly stripped from public education by Sacramento.

In a Nov. 7 statement, Gov. Jerry Brown said, “Californians made the courageous decision to protect our schools and colleges and strengthen the California dream. We joined together as Californians first in a resounding victory for education and fiscal integrity.”

Current projections by the “Yes on 30” team estimate that the measure will collect $6.8 billion to $9 billion in revenues. This is accomplished by increasing the sales taxes for the next four years by .25 percent, and the income tax for those who earn more than $250,000 a year for the next seven years.

In a healthy economy, the market would probably absorb the temporary costs. But with the economy of California in the intensive care unit prior to the increases, the prognosis is dire.

According to an article by Chris Megerian of the Los Angeles Times, tax revenue has failed to match projections for 2012 without the additional taxes.

The administration’s most recent report showed it falling 2.1 percent below expectations in the current fiscal year, a $379-million drop.

So the question remains: Will tax revenues increase due to higher taxes or decrease as the last few business owners in California shutter their doors and move to states with more business-friendly environments?

It is too soon for solid data to analyze, but anecdotal evidence is emerging on a daily basis.

n Nov. 8: Boeing announced the firm will cut 30 percent of management jobs from 2010 levels. The company will also close facilities in California and consolidate several business units to cut costs.

n Nov. 8: Take-Two Interactive Software announced it will move its testing studios from Northridge to downtown Las Vegas.

n Nov. 13: NBCUniversal announced it will cut 500 jobs in California.

n Nov. 13: Hostess announces it will likely reduce its workforce or require a substantial reduction in salaries from its employees.

n Nov. 13: HP announced it would lay off upwards of 29,000 employees.

As for the small-business owners across the state, the impact is more difficult to quantify at this early stage as their daily heroic efforts to remain in business don’t often make the headlines.

In speaking with local business owners directly, it is not difficult to hear the worry and concern in their voices. The owner of a local manufacturing company said that following the recent election, he has decided to move his entire assembly and distribution operation to Nevada.

This results not only in job losses for his employees here in Valencia. There will also be additional staff reductions at his manufacturing partners in Palmdale and other area down-line suppliers.

He referred to the job losses with genuine sorrow as they relate to local people in a community he has lived in for more than 20 years.

Prior to the latest round of tax increases, California held:

The third highest unemployment rate in the nation

More than a million fewer people working today than 10 years ago

Nearly a third of the nation’s welfare recipients

Eight of the 10 worst foreclosure areas in the nation

More than $2 trillion lost in homeowner equity since 1997, which is greater than the yearly economy of California

4.4 million taxpayers have left the state since 1998

What will an additional round of tax increases, along with the implementation of statewide cap and trade, bring to a sinking economy?

The jury is still out on the success of Proposition 30, but I suspect the revenue it will collect will be far less than $6 billion as our state economy continues to collapse.

If companies continue to move, at some point, employees must follow. The exodus from California does not show any signs of slowing in the next few years.

It’s a vicious circle. State revenues drop, taxes rise, businesses move, revenues decrease, and the circle continues until the state enters into the increasingly likely receivership.

The unfortunate victims will again be the schools and the taxpayers.

Alice Khosravy is a Santa Clarita Valley resident. “Right Here, Right Now” appears Fridays in The Signal.

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