GOP Tax Reform Boosts Wages According to Boston University Researchers

TAX REFORM UPDATE!!

Researchers at Boston University Agree!

In a study published this morning analyzing the economic and revenue impacts of the Republican “Unified Framework” Tax Plan, researchers found:

  • The new Republican tax plan raises GDP by between 3 and 5 percent and real wages by between 4 and 7 percent.
  • This translates into roughly $3,500 annually, on average, per working American household.
  • The source of the increase in U.S. output and real wages is the UF plan’s reduction in the U.S. marginal effective corporate tax rate from 34.6 percent to 18.6 percent.
  • According to their model, the U.S. corporate income tax represents a hidden tax on U.S. workers.

Click here to go directly to the study

Corporate Tax Reform and Wages: Theory and Evidence

New analysis from the Council of Economic Advisers proves:

  • Reducing the statutory federal corporate tax rate from 35 to 20 percent would increase the average household income in the United States by, very conservatively, $4,000 annually.
  • The increases recur each year, and the estimated total value of corporate tax reform for the average U.S. household is therefore substantially higher than $4,000 à The most optimistic estimates from literature show wages could boost more than $9,000 for the average household.
    • A 15 percent corporate rate cut could increase average household incomes from $83,143 in 2016 to between $87,520 and $92,222.
    • Median household income — meaning earnings for more of a typical household — would rise from $59,039 to between $62,147 and $65,486.
  • Literature finds countries with low corporate tax rates have seen higher wage gains than countries with high corporate tax rates.

Click here to link to study in its entirety

A Fairer Tax Code Is a More Efficient Tax Code

Tax formThe last time we saw comprehensive tax reform in this country was also the last time UCLA won a Rose Bowl (1986), so we are talking about a long, long time. We know there have been several tax cuts, and tax increases, since then, but as for some legislative attempt to drive a change in the overall system of tax policy in this country, it has not happened in over 30 years. It would be easy to argue that partisan polarization is the cause of this legislative difficulty, but that would be inaccurate. Partisanship did not keep welfare reform or comprehensive trade agreements from being done in the 1990s. Partisanship did not keep significant national-security endeavors from passing in the 2000s. And President Obama’s reelection in 2012 coincided with the sunsetting of the George W. Bush tax cuts, creating one of the more bipartisan agreements in recent history, when Vice President Biden and Senate majority leader McConnell negotiated a permanent extension of the tax cuts that resulted in more favorable treatment for investment tax and estate tax and left the individual rates at the lower levels of the Bush plan, besides at the top rate. Bottom line: Partisans have done plenty of bipartisan work over the last 30 years; they just haven’t done it when it comes to reforming something that is broken.

The term tax reform is pivotal here. Tax cuts scream for people who pay too much in taxes wanting to pay less (fair enough). Tax reform implies something is structurally unfair, and therefore needing reformation. We do not need to reform that which is already good and right. Sure, we may turn a knob here and there on levels, but reform is more comprehensive, and more reactive. The catalyst to reforming something is admitting something needs to be reformed.

The catalyst for 2017/18 tax reform is a broken tax code, and that brokenness is most evident in two places: A brutally non-competitive business tax code that hasn’t come close to dealing with the global realities of the last 30 years; and a glut of tax brackets and deductions that are too confusing, too easy to manipulate, and too divorced from simplicity and fairness. Yes, the rates are too high, both individually and corporately, but beyond that, the system is not right. The efforts of the Trump administration, led by Treasury Secretary Steve Mnuchin, National Economic Council director Gary Cohn, and the GOP leadership of the House and Senate, seek to use a new tax-reform bill to attack the fundamentals of what is broken in the tax code (a non-competitive corporate code) and clean up around the edges as well (alternative minimum tax (AMT), pass-through entities, etc.).

The math of passing tax reform is difficult because of Senate rules on reconciliation. To attach it to a budget bill and thereby enable 51-vote passage, the impact the tax plan can have on overall revenue (and therefore deficits) is limited. “Dynamic scoring” — the reality of supply-side math that pro-growth tax cuts move us in the right direction on Laffer’s Curve — allows for some more liberal use of this parliamentary reconciliation reality. But at the end of the day, the White House is limited in how much it can reform the tax code without “pay-fors” — offsets and such that will enable the plan to be scored within budget-reconciliation math.

After the inevitable death of the ghastly “border adjustment tax” idea, the best “pay-for” available is eliminating the deductibility of state and local taxes against federal tax liability. Should that tax deduction be eliminated, the comprehensive business tax reform needed (a 20 percent rate vs. a 35 percent rate, a territorial system, repatriation of foreign profits, and the elimination of nearly all special-interest deductions) can become reality. And yet the path to tax reform is being blocked by those who would hold on to the abysmal deductibility of state tax — a blockage being promoted by Republicans and Democrats alike (who says they never do anything on a bipartisan basis?).

Who would want to hold onto the deductibility of state taxation? Well, legislators in high-tax states, for one, who fear little consequence from the residents of low-tax states who end up footing the bill for their fiscal recklessness. In fact, the sole source of opposition to eliminating this deduction has come from blue state California, blue state New Jersey, blue state New York, and blue state Connecticut. Unfortunately, the fact that these states are all blue does not mean this is leftist partisanship, because the opposition is coming from Republican legislators and thought leaders in these states as well. That opposition underscores the fundamental need for reform — reform in our policy, but reform in our thinking as well.

There is never going to be reform that does not upset some people, somewhere in the tax food chain. If there could be such a thing, by definition, there would be no need for tax reform! The objective of a national tax-revenue system should be to fund the legitimate functions of government, and do so in a manner fair to the national self-interest, devoid of governmental favoritism or bias. The purpose of a tax system is not to implement social agendas, punish certain behaviors, reward certain behaviors, etc. The federal tax code is a funding matter, and it ought to be done in the least threatening way to growth and competitiveness possible. A 0 percent tax code is not a possibility, as competitive as it may be, as government has responsibilities, liabilities, and legitimate functions that require funding. But where funding can be achieved without compromising American economic growth, that must be the aim.

The business-investment tax code in our country is a disaster, and this is hardly denied by the other side of the aisle. The rate is too high, and the incentives for businesses to keep moneys offshore are gigantic. Additionally, the loopholes, deductions, and various ways in which certain privileged or selected companies benefit (while others do not) is a direct violation of the intent of the tax system. Simplification is the goal, and an even playing field that does not pick winners and losers is the aim. While I would prefer to get rid of the R&D credit (crony capitalism for pharma) and the low-income-housing credit (crony capitalism for real-estate developers), the proposed tax reform goes a long way towards equalizing the business code and creating a competitive scenario for our U.S. companies with large multinational presence.

So what is the hang-up? The aforementioned state-tax deductibility issue is being presented as a hang-up by Left and Right alike. Ironically, the concern the Left has always had with Republican tax maneuvering is that it unfairly assists those on the higher end of the wage spectrum. Here, the Democrats are supposedly upset about the loss of a tax deduction that, by definition, is used only by those on the higher end of the wage spectrum (those who itemize). But let’s look at the issue from the vantage point of Republican voters in high-tax blue states. Could it mean a higher overall net tax liability? That is very unlikely, since those most affected by this would be of such an income context that they have almost certainly been subject to the AMT anyways, a tax atrocity that was already disallowing the state-tax deduction. But for those who were not previously in AMT but are fearful of losing the state-tax deduction, two things must be said. First, no one knows whatsoever how their net picture would turn out in the new tax law, because the income levels receiving the new tax rates (12 percent, 25 percent, 35 percent) have not been announced. Any attempt to model tax liability in the new system will be rank speculation.

Second, if a very small number of people end up paying more, not less, in the new system, it should have no bearing on what we believe about tax reform. I do not believe that will happen, and if it does, I think the net impact will be so small and affect so few, it will not even register. But even if it did, the fundamental question is whether or not residents of South Dakota and Texas should be footing the bill for a federal loss of revenue just because their states choose to run their affairs with a high degree of fiscal sensibility and wisdom. Tax reform is meant to reform what is broken, and the use of a state-tax deduction is discriminatory, unfair, and, worst of all, enabling. It enables high-tax states to make foolish decisions, to overly rely on highly cyclical income streams, to spend without regard to consequences, and to not factor in competitive realities across our cherished 50-state union.

The need of the hour is beneficiaries of the broken tax system to maintain advocacy for reform. The generation-long resistance to reform is a by-product of special interests and a mentality that replaces common-sense tax policy with gaming of the system. We can do better, and for those who know how badly this economy and our national fiscal situation need growth, we must.

David L. Bahnsen is a trustee at the National Review Institute, the managing partner of a bicoastal wealth management firm, and the author of forthcoming book, “Crisis of Responsibility.”

This article was originally published by the National Review

Dems want to raise property taxes to fund government pensions

Pension moneyI guess I should use the old vaudeville line: Stop me if you’ve heard this one: the push to increase commercial property taxes is about government pension costs. Returning to this subject at this time (I wrote on the same subject for the Sacramento Bee last April) is prompted by the coming together of a couple of recent events.

There was the League of Women Voters and other groups hosting a meeting in Los Angeles this past weekend to “educate” people and advocate for a split roll property tax seeking to raise billions of tax dollars on the back of businesses. Also last week, Stanford University’s Institute for Policy Research issued a report by professor and former Democratic legislator Joe Nation describing the pension burden that is beginning to strangle state and local governments in California.

The services that are affected by both the split roll rally and the Stanford report are quite similar.

Supporters of the split roll say that raising taxes on commercial property will provide $9 billion a year needed for schools and services provided by local governments. Meanwhile, Joe Nation’s report says that because of pension contributions by employers (i.e. governments) increasing an average of 400% over the past 15 years, educational services, recreation, community services and others are squeezed for lack of money.

Many “core mission services,” as defined by the Stanford report, will be starved of money because of pension demands. The split roll advocates talk about the need for more money for local services. What they don’t tell you is that money for those services is being diverted to cover the pension requirements of state and local governments because these governments made generous promises to workers and accepted revenue projections to cover those promises that did not play out.

Instead of admitting that more money is needed to cover pension costs, split roll advocates create a false argument about business dodging its fair share of property taxes. They claim homeowners now pay a much larger share of the property tax burden than they did prior to Proposition 13. A Legislative Analyst’s Office report undercuts that false claim.

The report states in part, “Homeowners pay a slightly larger share of property taxes today than they did when Proposition 13 passed. Proposition 13 does not appear to have caused this increase. … In part, this may be due to faster growth in the number of residential properties than the number of commercial and industrial properties.”

The so-called grassroots activity seeking support for a split roll is backed by powerful public employee unions who support more revenues to cover the pension costs. Yet, you won’t hear anything from the split roll advocates about the pensions strangling local budgets or pushing some cities toward bankruptcies.

Meanwhile, the Stanford study makes it clear with numerous examples that pensions are absorbing greater and greater portions of local government budgets. The Stanford study states clearly there is “agreement on one fact: public pension costs are making it harder to provide services that have traditionally been considered part of government’s core mission.”

This piece was originally published by Fox and Hounds Daily

Will the Trump tax plan help California?

donald-trump-2As most people are now painfully aware, California’s progressive political majority has just hit middle-class taxpayers with billions of dollars in new taxes. As a direct result of these actions, the state will soon have the distinction of having the highest taxes in the nation in the following categories: Highest income tax rate; highest state sales tax rate; highest vehicle tax; and the highest gas tax (and that doesn’t even include the added costs of cap-and-trade regulation). For the wealthy, California can be a lovely place to live. For normal folks, life in the Golden State can be a struggle. According to a recent article in the Sacramento Bee, California lost more than 1 million people in net domestic outmigration between 2004 and 2013.

Other than leaving the state, perhaps the only relief available for California’s middle class is tax reform at the federal level. And while there’s a lot to love in the “Unified Framework for Fixing Our Broken Tax Code” embraced by both President Trump and the Congressional Republican leadership, there is also a very big caveat.

First, the good stuff. The plan calls for lowering the income tax rates for individuals and families. It would shrink the current seven tax brackets into three — 12 percent, 25 percent and 35 percent — with the potential for an additional top rate for the highest-income taxpayers.

Second, it would roughly double the standard deduction so that typical middle-class families will keep more of their paycheck. The plan also significantly increases the Child Tax Credit.

Third, while it eliminates some loopholes, it does preserve the cherished tax incentives for home mortgage interest and charitable contributions, as well as tax incentives for work, higher education and retirement security.

Fourth, it repeals the death tax and Alternative Minimum Tax which forces many Americans to calculate their taxes twice.

In addition to helping middle-class Californians, the reform package would also help the state’s small businesses by limiting the maximum tax rate for small and family-owned businesses to 25 percent — significantly lower than the top rate that these businesses pay today.

For larger businesses and corporations, the framework reduces the corporate tax rate to 20 percent — below the 22.5 percent average of the industrialized world. It also ends the perverse incentive to offshore jobs and keep foreign profits overseas.

Finally, in a commonsense proposal, the framework would allow “repatriation” of American dollars by imposing a one-time, low tax rate on wealth that has already accumulated overseas so there is no tax incentive to keeping the money offshore.

Now, here’s what will undoubtedly cause some Californians heartburn. The proposal calls for the elimination of the deduction for state and local taxes. Currently, Californians are able to deduct from their federal tax returns both property taxes paid to local governments and income taxes paid to the state. Because California is a high tax state, the loss of the deduction would be very significant. In fact, some estimates show that Californians, in total, currently deduct over $100 billion in taxes from their federal tax liability.

Losing this deduction will have less of an impact on working families and the middle class, particularly when balanced against the middle class tax relief under the framework. But as one moves up the economic ladder, California’s more wealthy taxpayers will take a bigger hit.

While some have suggested that the Republican Tax Reform Framework is revenge against high tax, mostly Democrat controlled, states, the reality is that there are legitimate policy reasons for reducing or eliminating the deduction. In essence, low tax states are currently subsidizing high tax states with funding the federal government.

Moreover, the loss of this deduction might spur high tax states like California to rethink their own tax policy and pursue lower taxes as part of tax reform efforts at the state level. In California, that is long overdue.

Finally, a bit of irony for high-tax California. Because property taxes are included as part of the federal deduction, if it were not for Proposition 13, Californians would be threatened with an even greater loss of deductibility. So as bad as getting rid of the deduction might be for some, it could be worse. And for that, we can thank Prop. 13 which, once again, rides to the rescue of California taxpayers.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

This article was originally published by the Orange County Register

How the Trump tax plan will make most people better off

TaxesWith Washington planning a broad overhaul, your tax bracket could be changing. But will that actually score you and your family a lower tax bill?

While the Republican-led tax reform plan is short on some details at this point, the head of a tax policy group called the plan “viable” in an interview with CNBC.

“I think it’s a real step in the right direction,” Scott Hodge, president of the non-partisan tax policy research Tax Foundation told CNBC’s On the Money recently. “Not only in just simplifying the tax system, but in creating a more dynamic tax system, one that is more conducive to economic growth.”

Founded in 1937, The Tax Foundation is an independent, non-partisan tax policy research organization.

The tax overhaul promises a simpler tax code. For individual taxpayers, the current seven income tax brackets would be reduced to just three: 35 percent, 25 percent and 12 percent.

However, another “bracket” is zero percent, which represents those who don’t pay any income tax at all. The standard deduction will double to $12,000 for single taxpayers and $24,000 for married couples filing jointly.

Hodge predicted those folks will come out ahead under the new plan. “At the bottom end, they’re going to make some big changes. They’re increasing the standard deduction, the ‘zero bracket’ if you will, so that a couple won’t pay any income taxes up to $24,000 a year. That’s great.”

But while establishing fewer income brackets, the plan is proposing the removal of nearly all itemized deductions, except those for mortgage interest and for charitable donation deductions.

“That’s the real balance here, is how far we can reduce tax rates to make up for some of the deductions that we’re going to lose,” Hodge said.

Another major provision of the GOP tax reform plan is the elimination of deductions for state and local taxes – a change that could hit middle and upper-income taxpayers. …

Visit CNBC for the rest of the story

Businesses Joined by Non-Profits in Leaving California for Friendlier States

Friends in economic development agencies and in the site selection consulting world have asked why I haven’t posted anything in quite awhile. My answer is simple: I’ve been exceptionally busy. It certainly isn’t because there aren’t things to write about.

Another question I’m usually asked is whether businesses are still leaving California.

They are, especially with the state legislature again failing to provide tax or regulatory relief to its home-state companies. Overall, taxes, fees and regulations have gotten worse. Such a difficult business environment, combined with grim treatment by local governments, have caused operating costs to grow faster in the San Francisco Bay Area and Los Angeles than in virtually every other metropolitan area in the nation.

NevadaSo large corporations and small business entities continue to look for ways to partially or fully exit the state. Today alone brought two examples, which by coincidence both involve Nevada.

The first is a loss for Los Angeles with Virtual Guard, Inc. leaving the city’s Sherman Oaks section. The company plans to relocate its headquarters and interactive command and control center to Clark County (Las Vegas area), citing an “unfriendly economic environment” in California. The move is likely to occur later this year.

There, Virtual Guard plans is expected to hire 80 new employees within its first two years of operations. The video monitoring company is also a developer and integrator of technology in the perimeter security sector and its solutions are being used throughout the United States and Canada.

California, which a long time ago was a haven for aerospace companies, will lose another one next year.

ERG Aerospace Corp. plans to relocate its Oakland operations to McCarran, Nevada and make the Silver State its headquarters. The company manufactures materials and components for the aerospace, national defense, semiconductor manufacturing, biotech and other high technology industries. The target date for the move is the second quarter 2018, with operations to commence in the same quarter.

Several months ago a non-profit organization said it would relocate out of state, too. Horizon University, a private, Christian school that started classes in 1993 in San Diego is heading to Indianapolis.

Horizon’s President Bill Goodrich calls the decision “a no-brainer.” He said Indiana offers a “climate” that was slipping away in California, and by that he wasn’t referring to San Diego’s sunny days. Goodrich said that the university helps people “grow academically” while integrating the “strong biblical teachings and we find in Indiana, there’s an openness to that.”

The move will allow the, accredited university to grow on a 97-acre spread – in a state with less “red tape” – and attract more students.

Thanks to high costs, a sizeable non-profit move is upcoming: Toastmasters International will shift its headquarters from its birthplace in Orange County to Colorado.

With about 180 employees, Toastmasters CEO Daniel Rex said costs in California were a concern. “When you look at the availability of workers, when you look at the cost of commerce and real estate, this is something that makes sense.” The organization is spending $19.5 million to buy a building in Englewood, south of Denver. Toastmasters is a legendary California institution, founded in 1924 in Santa Ana. Since 1990 it’s been based in Rancho Santa Margarita.

Business people who endure the decline in California’s business climate and pervasive cost increases can take some comfort knowing that some non-profit brethren are members of the same club.

I’ll write more about how California treats its commercial enterprises. But first I need to see how many business-helpful bills and business-damaging bills Gov. Jerry Brown will sign into law.

One focus of this blog has been to address California’s perennially difficult business environment. Joseph Vranich is known as The Business Relocation Coach while the formal name of his business is Spectrum Location Solutions. Joe helps companies find great locations in which to grow. Also, Joe has been a Keynote Speaker for more than 20 years – see A Speaker Throughout the U.S. and in Europe and Asia.

This article was originally published by Fox and Hounds Daily

President Trump’s weekly address: Four principles for tax reform

Transcript:

My fellow Americans,

The American Family has always been the heart of our great nation.  In homes across this country, families teach their children to work hard, to love each other, and to make the most of their talents in pursuit of their dreams.

Yet for too long, American families have been hurt by Washington’s policies that put the interests of other countries before the interests of our country.

That is why, in my Administration, we are pursuing tax cuts and reform that create jobs in America, for American workers – not foreign workers, but American workers.

Here are my four principles for tax reform:

First, we are going to make the tax code simple and fair so that families can spend more time with their children, and less time wading through pages of paperwork.  A staggering ninety-four percent of families use professional help to do their taxes – and that’s not fair, that’s not right.  That’s why under our plan, ninety-five percent of Americans will be able to file their tax return on a single page without keeping receipts, tracking paperwork, or filling out extra schedules.

Second, we are going to cut taxes for the middle class so that hardworking Americans can finally save more for their future.  We want to help families keep more of what they earn – and to be able to afford the costs of raising a family.  Our tax code should recognize that the most important investment we can make is in our children.

Third, we are going to restore America’s competitive edge by making our tax system more attractive for investment and job creation.  Our business tax rate is the highest in the world – pushing jobs to foreign countries.  That’s not what we want, that’s not what I’ve been talking about all these years – I’ve been talking about the exact opposite.  We need to bring down our tax rate so we can create jobs, wealth, and opportunity right here, in the United States of America, so we can bring our hobs back and bring our businesses back.  We want tax reform that puts America First.  We want tax reform that makes America great again.

Finally, we are going to bring back trillions of dollars in wealth parked overseas so that it can be invested in our country, where it belongs.

We have a once-in-a-generation opportunity to reform our tax code and pave the way to unprecedented prosperity.  By doing what we’re doing, we will see results like you’ve never seen before.  It will be the largest tax cut in our country’s history.  I am asking members in both parties to come together, to put aside partisan differences, and to pass historic tax reform and tax cuts for the great citizens of our nation.  That’s how we will all succeed and thrive together – as one team, one people, and one American Family.

Thank you, God bless you, and God bless America.

###

Will taxpayers trust the GOP again?

TaxesThe California GOP is rapidly approaching the edge of a black hole from which there is no escape. But rather than reverse course by appealing to the needs and aspirations of average Californians, the response by some Republicans in the Legislature is to rush forward to throw themselves into the abyss by supporting policies that punish the middle-class.

Only a quarter of California voters are registered Republicans, barely more than those declaring no party preference. In the Legislature, Republicans number less than a third of lawmakers in each house.

There was a time when even some Democrats in the Legislature supported a healthy economy, taxpayers’ rights and Proposition 13. If any still exist, they are hiding under their desks. Over the last two decades, that party has lurched to the left and those now in Sacramento are devoted to serving the interests of government (aka public sector unions), the ever-expanding entitlement class and the wealthy denizens of coastal enclaves.

For taxpayers, criticizing Democrats is almost too easy given how thoroughly they have abandoned the middle class. But Republicans have traditionally been held to a much higher standard when it comes to taxation and fiscal responsibility. The question now is the extent to which taxpayers can trust Republicans at all.

With Republican support, the California legislature passed several bills slamming California’s ever-shrinking middle class. First, there was perhaps one of the most unpopular bills in California history, Senate Bill 1, imposing $52 billion in permanent new gas taxes and user fees on California drivers. Next was the infamous “cap-and-trade” legislation, Assembly Bill 398. In a few short years, drivers could be paying a buck and a half a gallon just in taxes and climate fees when added to the already sky-high levies imposed by the state. Last, but certainly not least, is Senate Bill 2, part of the California’s ineffective and counterproductive response to the housing shortage. The bill would impose a $75 to $225 “recording fee” on all real estate transactions and generate as much as $258 million annually. Only in California and Monty Python movies would a tax on real estate be considered a rational response to a housing shortage.

Let’s be clear. Those legislators who best defend taxpayers are still Republican. But unfortunately, those faithful few are being smeared by association with those who bend with the wind, succumb to the next big campaign contribution or promise of some “juice committee” appointment or lobbying gig. Note that the reverse is true as well: Some Republican legislators who stood firm for taxpayers were punished by having their committee assignments revoked or banished to the smallest office in the Capitol.

Average taxpayers understand how painful these tax hikes are. But they probably don’t understand how politically incompetent the Republican leadership was in getting them passed. Republican support for tax hikes allowed targeted Democrats in marginal districts (those where a Republican has a chance of winning) to vote against the tax hikes. These Democrats can now seize the mantle of fiscal responsibility even though everyone knows that, had their vote for the hikes been necessary for passage, they would have voted yes. Time and time again, Republican support of tax hikes allowed the “lifeboating” of Democrats in swing districts. To use a phrase by one party leader, this was “felony stupid.”

Taxpayer advocates take no joy in the slow immolation of the Republican Party.

The loss of any effective opposition from a minority party is a loss to all Californians. A strong democratic process relies on the competition of ideas. Moreover, one party rule has led to an extraordinary abuse of power in several areas including campaign rules, shutting down debate and jerry-rigging agencies and commissions in ways to crush political opposition. The loss of a vibrant Republican Party in California will accelerate the state’s metamorphosis into a Venezuela-like banana republic.

In order to have a chance against the power and money of the Democrats, Republicans need to distinguish themselves on critical matters of policy. Unlike social issues — as important as they may be — the fiscal issues of economical government, reasonable taxation and protection of Proposition 13 have been the rock to which Republicans have wisely clung as California’s political skies have turned from purple to blue. A return to these principles is a necessary first step for the GOP to repair its damaged reputation.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

This article was originally published by the Orange County Register.

California Legislature abandons middle class

CapitolDoes anyone honestly think that the California Legislature’s complete abandonment of the middle class is unrelated to the state’s highest-in-the-nation poverty rate?

This past week presented a stark contrast in the Golden State. First, the controller reported state tax proceeds from all categories are exceeding budget projections. Specifically, the state brought in almost $9 billion in August, exceeding projections in the state budget by over $340 million. All three of the major sources of state revenue — personal and corporate income tax plus sales tax — were up over last year. While a substantial portion of this uptick in economic activity can be attributed to the Trump recovery, there is no denying that California remains an economic powerhouse in its own right.

However, about the same time as we were getting cheery news about state revenue, the U.S. Census Bureau reported that over 20 percent of Californians live in poverty. The “Supplemental Poverty Measure,” which takes into account California’s absurdly high cost of living, gives us the highest poverty rate in the country while the rest of the nation has shown improvement.

So how is it that the most economically powerful state in the union has a poverty level that would make even Mississippi blush? In large part, the answer lies in California’s toxic mix of crony capitalism with mindless pursuit of progressive policies. And both were on full display in the final week of this year’s legislative session.

Few bills moving through the last hectic hours at the Capitol could be remotely characterized as helping the middle class. For example, Assembly Bill 1250 is a complete sop to labor interests. It would prohibit counties from contracting out for services “customarily” performed by county workers unless 14 complicated requirements are met. This would drive up the costs of county government — ultimately paid by taxpayers — and would hurt nonprofits which provide low cost, effective services to county governments. Fortunately, it appears that AB1250 has been stymied this year but will be pushed into 2018.

On a more grand scale, little compares to the various bills moving through the Legislature to deal with the housing crisis. Special interests have formed a conga line outside the governor’s and legislative offices to get a slice of the public pie (baked, of course, with taxpayer dollars). First, is a massive housing bond. Keep in mind that a $4 billion dollar bond will likely incur $8 billion in taxpayer costs after interest and the cost of bond underwriting (Wall Street loves California debt). Second, labor once again wants any public dollars spent on housing to be subject to costly labor restrictions such as Project Labor Agreements or prevailing wage requirements. Who pays for the higher costs? Why, taxpayers, of course.

Overall, California’s housing policies being pursued are designed to reward special interests rather than increase housing stock in any significant way. It is totally lost on our elected leadership that the best housing policy would be for government to reduce regulations that stand in the way of housing construction rather than increase regulations. One bill, Senate Bill 35, does provide a little relief from burdensome CEQA requirements but it contains 18 separate provisions that developers must meet in order to qualify for the expedited permit process for residential development.

The only bill of which we are aware that would have significantly helped housing affordability was Assembly Bill 1100, co-authored by Assemblymen Phil Chen, R-Brea, and Matthew Harper, R-Huntington Beach, to increase both the current homeowners exemption (which provides homeowners with a scant $70 of annual tax relief) and the renters credit. This proposal would require no new government program nor impose new regulations, which probably explains why it lacked popularity in the Capitol. However, it would have put immediate cash into the pockets of all Californians who have to pay for the roof over their heads. That’s what we call middle-class tax relief.

Middle-class Californians have a choice. Stay in California and continue to be the piñatas for progressives and special interests or bail out to other states. Increasing numbers of California’s middle class are choosing the latter.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

This article was originally published by the Orange County Register

This Supreme Court ruling imperils every California taxpayer

TaxesEarlier this week the California Supreme Court issued a stunning decision which imperils every California taxpayer. At issue is whether taxes proposed by special interests using the local initiative process have to comply with taxpayer protections set forth in Proposition 218, the Right to Vote on Taxes Act, a Howard Jarvis Taxpayers Association sponsored statewide measure approved by California voters in 1996.

The case, California Cannabis Coalition v. City of Upland, at first glance seems limited to a narrow technical question: When a local initiative seeks to impose a new tax, does the issue need to be put to the voters at the next general election or can the proponents, relying on other laws, force a special election? The lower court had ruled that taxes proposed by initiative are exempt from the taxpayer protections contained in the state constitution, such as the provision dictating the timing of the election.

When the lower court in San Diego issued its decision, the Howard Jarvis Taxpayers Association was alarmed because the constitution’s taxpayer protections include the right to vote on taxes. For that reason HJTA provided legal representation to the city of Upland. Of major concern was that, if local initiatives are exempt from taxpayer protections, then public agencies could easily deny taxpayers their right to vote on taxes by colluding with outside interests to propose taxes in the form of an initiative, then submitting a tax under a lower vote threshold than that currently required. The worst case scenario would be if a local government were to rely on this case as legal authority to impose a tax without any election at all.

The import of the case was not lost on those who dislike Proposition 218’s requirement that local special taxes — those imposed for specific purposes — receive a two-thirds vote of the local electorate. For example, backers of a tax to subsidize a new sports arena in San Diego were hoping that the lower court ruling would allow them to impose a special tax with only a simple majority vote. Now that the lower court decision has received the imprimatur from the state’s highest court, these kinds of schemes are already being hatched.

The court in Upland based its decision on the view that local voters were different from the governing body when it comes to enacting legislation. But for decades courts have said that, when voters use the initiative power they are simply “stepping into the shoes” of the governing body and have the same powers and same limitations. For example, a local city council cannot seize someone’s real property without paying “just compensation,” but if local housing advocates propose an initiative to seize someone’s property, the reasoning of the court suggests that there’s no requirement to pay for it. That is surely an absurd result.

While there’s little dispute that the logic behind the majority opinion could substantially weaken the two-thirds vote requirement in Proposition 218, taxpayers are not wholly without hope.

First, the court barely mentioned the parallel two-thirds vote requirement in Proposition 13. Its vitality will surely be the subject of more litigation.

Second, while taxpayers are concerned about collusion between local governments and special interests, not all local governments are applauding the decision. In fact, some local governments filed a “friend of the court” brief in support of HJTA’s position. That’s because many local governments are concerned that special interests could usurp the governing body’s ability to tax.

Finally, the actual ruling dealt with the timing of local elections for tax increases proposed by initiative. While the dicta in the decision (verbiage in a decision not necessary for disposition of the case) is a huge threat to Propositions 13 and 218, the scope of the ruling will require years of additional litigation.

In the meantime, the decision has provided tax-and-spend interests with a roadmap of how to avoid taxpayer protections set forth in the California Constitution. When taxpayers see how they are being burned by collusion between those seeking additional tax revenue, like government employee unions and complicit local officials, it may be necessary to go back to the initiative process to close yet another court created loophole.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.

This article was originally published by the Orange County Register