FLASHREPORT

DEMOCRATS' TAX HIKES TARGET CALIFORNIA'S FUTURE

Ron Nehring, Chairman of the California Republican Party

Democrats’ Tax Hikes Target California’s Future

Predictably, the Democrats in Sacramento are proposing a series of massive tax hikes to feed state government’s spending addiction.  While the current budget deficit is their excuse to raise taxes, the truth is they would prefer to raise taxes regardless of whether the state is running a deficit or not.  The reason lies in the coalition that makes up the modern Democratic Party, and Republicans are right to resist their latest campaign to grow government even more quickly.

Republicans across America have made clear in the aftermath of the 2006 election that a rapidly expanding government at the expense of taxpayers is not why we elect Republicans to public office.  So while Republicans are upset about overspending in Washington, Republicans in Sacramento are not about to sign on to tax increases to feed a state government that has grown as rapidly, if not more, than the bloated federal government.

Rather, Republicans are staring down the wide array of interest groups demanding tax increases, rightly fighting for the little guy who invariably gets stuck with the bill.

The latest round of tax increases proposed by Democrats don’t just target “the rich” or “big corporations,” but target every Californian at every level of the economic ladder.

In today’s global market, capital is instantly mobile.  Raise taxes on capital in one place, and at the touch of a button that capital can be moved elsewhere for a higher rate of return resulting from a lower tax on that capital.  As it moves elsewhere, the jobs created by capital investment move elsewhere too.  This is true within the United States (where California’s high taxes drive people, jobs and companies to Nevada and Arizona), in Europe (where, say, France’s burdensome tax structure chases jobs to countries like low tax Ireland), and so on.  Try as they may, the Democrats cannot repeal basic laws of economics.

But they keep trying.  They claim raising rates on top income earners and corporations will balance the budget, but that’s far from certain.  The economic models the Democrats rely upon for their projections fail to take into account the drop in tax revenue likely to follow as individuals and corporations move elsewhere to escape the state’s onerous tax and regulatory structure, or the opportunity cost of those individuals and companies that determine moving to California is simply too expensive. 

Economists call this the difference between static and dynamic forecasting.  Static forecasting, which the Democrats rely on, fails to take into account the changes in behavior that result from changes in prices.  They assume a price hike at McDonald’s won’t drive any customers to the Burger King across the street. Taxes are the price we pay for government, and Republicans recognize that raising taxes here in California will help drive economic growth – elsewhere. 

The Democrats aren’t just upset that Californians aren’t taxed enough, but that structures are in place to make it more difficult to raise taxes than they believe it should be.  If they could, Democrats would repeal the 2/3rds requirement to raise taxes through the legislature, or Proposition 13’s cap on property tax increases.  Yet these protections exist for a very good reason.

In the private sector, the competitive pressures of the marketplace limit how much any seller can raise prices.  If Ford charges too much for a Focus, consumers can buy a Volkswagen Golf instead.  Yet, government faces no such competition.  If California raises its income taxes, you can’t choose to instead be taxed by Nevada without physically moving. 

Yet, many Americans do choose to do precisely that.  United Van Lines regularly tracks the migration patterns of Americans and consistently reports Americans moving from states with “helpful” governments in the Northeast to low-tax states in the South.  How healthy is it for a nation that its citizens must too often choose between remaining close to family and friends and going elsewhere to make ends meet?

In proposing their tax increases, Democrats are betting that enough Californians will choose to remain here and pay their higher taxes than go elsewhere.  History shows they are almost certainly wrong.

You can help.  Let Republicans in Sacramento know you support their firm opposition to raising taxes.  Let them know you appreciate their standing up for the little guy.  The pro-tax forces are swarming all over Sacramento – let your voice be heard too.