Taxing Services a Bad Move For CA

There is a clamor in Sacramento for “tax reform.” But for every political pundit, politician and bureaucrat in the room, there is a different definition of “tax reform.”

For fiscal conservatives, tax reform means tax cuts. The state of California takes too much of our money now and this heavy tax burden unquestionably hurts working families and hinders economic growth.

But for self-styled “progressives,” tax reform means even more tax hikes to feed an ever growing government and the demands of tax hungry special interests.

Because these two visions of “tax reform” are polar opposites, is it even possible to agree on anything related to changing California’s tax system?  Surprisingly, the answer is yes.

Both conservatives and liberals have at least acknowledged that California government is too reliant on revenue that fluctuates wildly.  In other words, there is some agreement that the mix of things that are taxed might be altered so that tax revenue is more predictable.

The desire to address revenue volatility is understandable.  Indeed, a commission was created by former Governor Schwarzenegger to address this very issue.  Unfortunately, the commissioners themselves could not agree on a solution.

Now, newly elected state Senator Robert Hertzberg has proposed that California start taxing services, not just sales of physical goods.  The reasoning behind Senate Bill 8 is that services make up a much larger slice of today’s economy than in the past and in order to have a “balanced” tax system, we should consider expanding the tax base to things like car repair, legal services, kids piano lessons and dry cleaning.

But taxing services is a bad idea for California.  First, such a levy would have a depressing effect on California’s service economy.  It is a simple fact of economics that when you tax something you get less of it.

Second, and somewhat related to the first, is the ability to avoid the tax by exporting the service.  For example, one can avoid California’s tax on accounting services simply by hiring an out of state accounting firm.  And speaking of avoiding the tax, unlike a sales tax where there is an inventory of physical goods that can be tracked, it is much more difficult to ensure compliance with a tax on services.  California already has a massive problem with tax avoidance due to the huge percentage of the economy that is “underground.”  A tax on services would drive even more economic activity into the shadows.

Some respected tax experts have not rejected out of hand the notion of extending a tax to services but only if done incrementally and in a manner that does not result in a net tax increase.  And here is where the Hertzberg proposal is especially flawed.  Rather than extend the tax to services and lowering the tax rate on both sales and services so the proposal is “revenue neutral,” SB 8 has no provision for lowering the rate.  So what is the tax hit on Californians?  It is estimated to be $10 billion annually.

Last week, a Wall Street Journal article noted how several states in America are now cutting taxes to stimulate economic growth and provide needed relief to their citizens. But the ruling class in California apparently wants to head in the opposite direction.

Taxpayer advocates should always be prepared to discuss legitimate tax reform. But, at this point, Senate Bill 8 doesn’t qualify.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Originally published by the HJTA

Comments

  1. It has been well known for many going back to the late 60’s early 70’s that property taxes and taxes in general were becoming a real burden on the large (at that time) middle class tax payer. The result at that time was because of Moonbeam”s ignoring of the common sense desire of the people for the California Government to live with in it’s means and cut fat, the “People” had to enact Prop 13, much to the hatred of Moonbeam and his arrogant followers. The result became constant attacks and end runs around Prop 13 in almost everyway imaginable. Hundreds of government entities have grown up in the State and “Fees” have been added to the costs of living in once was a great State and the Lotto was added as a revenue generator to help improve the lot of the children in the California education (or re-education) system. California has one of the worst education levels in the Nation presently. Indian Gaming has been added, they are now proposing “per mile” taxes and of course the newest scam on the Citizens of Ca., “Service Taxes)? Almost all of this was engineered after the great majority of California’s citizens voted in Prop 13 to curtail this craziness but appears to be of no avail. The only things that appear to have grown and prospered are an out of control socialist government and Unions and their favorite contractors. The only feasible answer to this out of control madness that I can see is that all the California Patriots (if enough are left) show up at the Capital on the opening day of a session and clean house! Take the State back and run it for and by the citizens!

    • Without the abolishment and the replacement of the “full time spending legislature” created by Big Daddy Jess Unruh, with a perfectly-adequate-for-Californias’-needs part-time legislature, Good luck! The socialist progressives have a vested interest in the legislature protecting the progressive appointed-not-elected regulating bureaucracies (where the real action is).

  2. TheRandyGuy says

    “…California government is too reliant on revenue that fluctuates wildly.” That’s because the cost of CA government CONSTANTLY INCREASES. If the cost of government were relatively stable, fluctuations in revenue wouldn’t be important – save when more comes in than you need for that eventual rainy day. Not possible now – every year, the spending increases resulting in critical shortages when the revenue doesn’t keep pace. BTW – taxing services will definitely result in tax avoidance (yep, the criminal kind) through the rise of barter/trade commerce. As well it should, too: Government doesn’t enforce the laws on the books the pols don’t like, so why should we – the people – follow the ones we don’t?

  3. “Now, newly elected state Senator Robert Hertzberg has proposed that California start taxing services, not just sales of physical goods.”

    Tax-and-spender hard at work here folks. Hold on to your wallet!!!!

  4. Lets make it mandatory that for every tax added in the state the state legislature and the governor have to pay it at the rate of 100 times the going rate. That would stop them from passing more taxes.

  5. Zamparippa says

    Can we impose a tax / fee on politicians who provide a “service” to the legal citizens? $1 M for every vote they make that results in screwing the taxpayers.

  6. The elected and the individuals running the many entities involved in the day to day running of the State as well as those controlling the Politicians know without a doubt that since over 50% of the States population is dependent on the government’s handouts that nothing will stop them. They know without a shadow of doubt that the average tax paying worker WILL pay the tariff and that is why they continue to exploit you. How many increases have you endured in smog fees? How about fees charged on your property for fire protection in addition to the taxes you also pay for the same thing? How about the constant additional vehicle license fees? Have any of you ever stopped to think about the double taxation you pay on vehicles when you trade a vehicle with a stated value in. Be very careful when you really start to consider all the ways the State of Calif. and it’s corrupt have conjured up because it can cause serious damage to the brain. As a footnote I must add that after 70+ years as a Californian the added fire protection fee finally ticked me off enough to leave for greener pastures (for ourselves, that is)..

  7. Stop complaining peasant – or they’ll tax you by the word.

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