The California Wake-Up Call

It seems that California has come to the conclusion that its highly progressive and anti-business tax rates did more than dampen what was once one of the world's economic powerhouses; their tax policies have literally bankrupted the state.  In what might be described as a political change of heart, a bi-partisan tax commission now advocates for the cutting of personal income tax rates, from 10.55% to 7.55%, and dropping both the state sales tax and corporate income tax to zero.  Zero.  While there is a tax increase based on business net receipts, essentially the plan is a broad tax cut, designed to stimulate business growth and to stop companies (remember, those are the entities that provide things most commonly known as "jobs") from exiting California altogether so they can stay in business.  So Californians can have jobs to go to when they wake up in the morning.  So Californians' mortgages get paid.

There's a lot of political talk about the progressive tax structure, but at a certain point, when (nationally) the top 10% of income earners pay 71.22% of income taxes collected, there seems to be in place an institutionalized punishment for increased earnings.  As any Vermonter who works a second job will tell you, there are diminishing returns to working those additional hours - and your state and federal government is telling you it's wrong to work harder and longer for more money by taking more of it from you.  State and local taxes then become a bigger and bigger bite of your earnings.

From the article:
They may be motivated by the reality that California's steeply progressive tax rates are defeating the purposes of progressive government. To wit, only a growing economy can create opportunity for the middle class and enough state revenues to finance schools and health care for the poor. A tax code that depends on 1% of taxpayers, 144,000 filers, to finance 50% of state income tax revenues has proven to be unsustainable, notwithstanding the liberal dogma that says tax rates don't matter (bold emphasis added).

I would argue that Vermont's tax structure shares a lot in common with California's, in that much of California's spending has relied catastrophically on the earnings of a fraction of its population.  Vermont's books this year would already be steeped in red had not a wealthy resident passed away, with the subsequent estate taxes helping to fill the empty coffers in Montpelier.  California has heeded the wake-up call:  will our leadership in Vermont do the same?  Given the state's annual negative 2.6% job growth rate (click on the "industry projections" icon), it may just be that we're already living in a microcosm of the California economy.

Comments

[Vermont Woodchuck]

This won't be a problem in Vermont. The State can tax it's workers and the school teachers at 71% to cover the progressive spread.

Why should they complain; the top paying jobs are in those sectors. It's up to them to carry forward Bernie's mantle of the "Radiant Future" in Vermont.

If the State is a few dollars short, why they can get those ditzy women who protested tax cuts in Montpelier last year. They said everyone can afford a few dollars more. Get their check.

[Bill]

The Vermont legislature as currently constituted reducing sales and income taxes to spur economic activity? Not a chance. With state revenues sagging over 15%, they increased spending by nearly 6%, and then overrode the governor's veto. Electing a Democrat or Prog. governor will likely mean a new round of spending and tax hiking and accelerate Vermont's nosedive. We'll be reduced to fighting for scraps of pork flung at us by the bald-headed triumvirate.

[Paul]

And it's more than California and Vermont. Associated Press writer, Michael Gormley had this to say in a recent issue of a New York newspaper.."So far this year, half of about $1 billion in expected revenue from New York's 100 richest taxpayers is missing."

"But at least two high profile defectors have sounded off on the tax changes: Buffalo Sabres owner Tom Golisano, the billionaire who ran for governor three times and who was paying $13,000 a day in New York income taxes....Golisano changed his official address to Florida....."
"Golisano, who created 5,000 jobs from his Rochester payroll processing company, Paychex, bristled when politicians said he was bailing on New York in the spring." 'If anything, New York state has bailed out on us.'

"Maryland enacted higher tax rates for wealthier residents in 2008 to boost revenue but income from those taxes is down 6.7 percent so far this year."

[Chris Campion]

You can only squeeze the sponge for so long. If the top half of income earners pay 97% of all personal income taxes collected (and they did as of 2006), who the hell is left to tax?