Sunday, July 10, 2011

California Unions: Why Won't This Golden Goose Die Already?

John Seiler at Cal Watchdog beats us to the punch on this one: Steven Harmon reports today in the Contra Costa Times on the efforts of labor unions to push new tax increases in tax-crushed California, and fails to realize the magnitude of what they're proposing.

In a break from Governor Brown's proposal to extend last year's income and sales tax rates for a further five years, labor leaders are now shying away from the idea of hiking taxes on middle-income Californians. Which would be nice if we didn't, as Seiler points out, already have the most regressive tax structure in the country (for our out-of-state readers: incomes over $47,000 carry a 9.3% marginal income tax rate, and that's down from last year's 10.3%). Instead, they may be hitching their wagon to the California Federation of Teachers' proposal for a "millionaires' tax." When the teachers' union first raised this crappy idea back in April, they were proposing a 1% hike in the marginal income taxes paid by the highest-earning 1% of the state's population. Now, the same people are apparently cursing their own lack of ambition; according to CFT president Josh Pechthalt, "We did polling, and it has huge support, so if we support an initiative for November, it would be more than 1 percent. I'm frankly not interested in something so minimal. I think 1 percent is much too low. It's a misreading of where people are politically." Yet Harmon misses the point when Pechthalt mentions that President Obama's agreement on the Bush tax cuts constituted a 4% break for the richest 1%: "If we could capture that in California, that would generate $10 billion." Harmon fails to do the math, but Pechthalt is suggesting a 4% tax hike on the state's wealthiest earners; in other words, the richest Californians would have a staggering marginal income tax rate of 14.3%. This would be the highest state income tax rate in the country, and by a mile (the highest rate in the country today, 12.6%, is paid in New York). It would also mean a 39% tax hike for these folks.

We first wrote about the millionaires' tax back in April, and haven't changed our minds since then. The best argument against the tax is the simplest one: taking someone else's property just because they have it is still theft, no matter what motive you have for it. But if you want some arguments about the ends justifying the means, here you go: doing so will rob businesses of the investment capital they need for growth, thus helping to ensure that the woeful state of California's economy persists; such a dramatic tax increase will surely accelerate the flight of productive citizens out of the state; the depressing effects on economic growth and the considerable incentive to avoid these taxes imply that $10 billion more will almost certainly not materialize; even if the funds did materialize, there's no guarantee that they'd be used toward the services the public wants (it's more likely they'd go toward payments against California's gargantuan pension liabilities); and it will only be a matter of time before Sacramento cries poverty again and needs even higher taxes.

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