Shattering the California dream?

Joe Guzzardi
April 10, 2015
As seen in:
Lodi News-Sentinel

With April 15 fast approaching, Californians’ are fixated on taxes, and steeling themselves against another round of hikes during the current legislative session. Residents and corporate CEOs alike fear the worst.

State Sen. Bob Hertzberg, D-Van Nuys, introduced S.B. 8, a proposed $10 billion sales tax on services. Accounting, legal advice, bank transactions, movie tickets and haircuts would be subject to the new tax. The proceeds, Hertzberg claims, would go to schools including the UC and CSU systems, to local government for parks, libraries, and to improve public safety. Monies would also be allocated to low-income families in the form of an earned income tax credit.

Unlike previous failed efforts to collect services, Hertzberg wants an all-encompassing approach that would only exclude certain small businesses like auto shops, heath care, education-related services and others whose companies generate less than $100,000 in gross sales.

Although Hertzberg describes his plan as “tax reform,” his many critics say that SB 8 is a massive new tax that insults California’s working families and imposes an undue burden that they can’t afford. Jon Coupal, president of the Howard Jarvis Taxpayers Association, a leading SB 8 opponent, noted that from the basic economic perspective, the more something is taxed, the less it’s available. Coupal concluded that Hertzberg’s tax “would have a depressing effect on California’s service industry.”

In 2015, California had an 8.44 percent combined state and average local tax rate; neighboring Oregon has no sales tax but a high personal income tax. The first hearing on SB 8 hasn’t been scheduled so its final outcome is uncertain.

Meanwhile, on the corporate scene, California’s business climate remains gloomy with the exception of Silicon Valley where global giants Google and Apple dominate. Executives have either fled or are considering fleeing to more tax friendly states with fewer rigid regulations and less zealous regulators. Last year, Toyota announced that it would pack up its Torrance headquarters office, and relocate its 5,000 managers and employees to Plano, Texas. In 2006, Nissan made a similar move, relocating to Nashville.

Automotive News wrote that despite Los Angeles’ talented, experienced workforce, doing business in California is more expensive for companies and their personnel. The cost of living for Toyota’s employees is 39 percent higher in Torrance than in Plano, and housing costs are 63 percent lower in Plano. Little wonder then that Chief Executive Magazine in its annual review of most business friendly states consistently ranks California number 50.

Even the motion picture industry, once synonymous with Hollywood, has taken advantage of out of state tax breaks and promotional offers to film outside California. Blockbusters “Titanic” and “Brokeback Mountain” were produced in Canada; “Foxcatcher” and “The Dark Knight Rises,” in Pittsburgh, Pa.

Some wealthy Californians, turned off by the state’s 51.9 percent federal-state income tax on earnings over $1 million, have left for more hospitable, better-managed states. Many others in the middle class, afraid that California’s drought will never end, have relocated in the East where rainfall is abundant.

Gov. Jerry Brown still likes to talk about the California dream, and how anything is possible in the Golden State. Brown can’t make it rain, but he can ease the bureaucratic squeeze to encourage a more welcoming climate for the state’s residents and businesses.

Joe Guzzardi is retired from the Lodi Unified School District. He’s currently a Californians for Population Stabilization senior writing fellow. Contact him at [email protected].