“Go east, young man” could be the new rally cry coming out of California if state lawmakers have their way and pass Assembly Bill 1253 — a massive retroactive tax hike proposal being rushed through the California Legislature ahead of the August 31 session deadline.
California, like so many states, is facing an economic downturn due the effects of the COVID-19 pandemic.
The Legislature should be looking for ways to help a crippling economy, not inflict more damage. If tax increases like AB1253 becomes the law of the state, look for a wave of 21st century pioneers flocking to friendlier economic frontiers in neighboring states.
Californians be warned. The Golden State already tops the national scales by having the highest personal income tax rate. Now lawmakers want to add an additional tax hike that would be retroactive to January 1, 2020?
Proponents of AB1253 claim it will raise between $6 billion and 8 billion in new tax revenues. The bill calls for a three-tier income tax surcharge. The proposed tax scheme would blow past the current 13.3 percent top tax rate for individuals by increasing the rate to 14.3 percent for incomes above $1 million, topping out at 16.8 percent for incomes above $5 million.
Fear of future arbitrary actions by a legislature can seriously depress the business climate of the state. The threat of tax increases alone will deter companies from considering new business ventures in California. Making the tax retroactive creates even more uncertainty for business owners. How long will it take before the sound of an impending stampede of individuals and businesses preparing to leave the state will be heard in the distance? Take a lesson from Maryland: After passing a so-called millionaire tax in 2008, it was reported that nearly one-third of the state’s millionaires fled.
While it may be a great sound bite for campaign literature, “sticking it to the rich” and relying on revenue from a small group of top income earners is a recipe for disaster, especially given the current economic conditions imposed by the COVID-19 pandemic. All it will take is for a handful of companies to experience financial setbacks and suddenly there will be gaping holes in the state budget. There go the projected revenues!
As if this scenario is not bad enough for the business climate in the state, Prop. 15 will be put before California voters in November as well. This initiative, if passed, will hurt businesses by imposing an additional $7.5 billion in property taxes.
Why in the world would any savvy business owner want to stay in California? And if and when the businesses leave, thousands of hard-working employees will be left without a way to pay their bills, adding to California’s already ballooning unemployment rate. That is, of course, if they don’t decide to leave themselves.
Nearby states that do not tax income will suddenly become logical and alluring alternatives. Alaska, Nevada, Washington, South Dakota, Wyoming, and Texas are but a few states with much lower tax rates that Californians may find more hospitable. These states have traditionally competed with California on the economic battlefront. They will happily welcome a mass exodus of residents to grow their economies, leaving California with diminishing business growth and a resulting decrease in state revenue – the very opposite outcome being sold by some California lawmakers.America’s pioneering spirit and the gold rush once led countless to the west seeking fortune and the dream of prosperity for themselves and their families. Almost 200 years have passed since then. Sadly, if AB1253 becomes law and Prop. 15 passes, we’re going to be seeing a gold exodus.
Leah Vukmir is the vice president of state affairs with the National Taxpayers Union, a nonprofit dedicated to advocating for taxpayer interests at all levels of government.
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