FLASHREPORT

CALIFORNIA'S 21ST CENTURY JOB KILLER

Ventura County Supervisor Peter Foy, Chairman of Americans for Prosperity - California

[Publisher's Note: As part of an ongoing effort to bring original, thoughtful commentary to you here at the FlashReport, I am pleased to present this column from Ventura County Supervisor Peter Foy. Foy also heads up the California efforts for Americans for Prosperity - Flash]

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Last week the Governor’s Commission on the 21st Century Economy released their plan for “stabilizing” tax revenue. Some of the Commission’s recommendations would undoubtedly help our state’s moribund economy. For example, reducing personal income taxes and eliminating corporate and sales taxes will greatly relieve the burden on our overtaxed citizens and employers. As calculated by the Tax Foundation, California has the fourth highest top individual tax rate in the country and we rank an embarrassing forty-eighth for our business tax climate.
 
The Golden State has always been known for leading the nation in innovation and prosperity, now we lead the nation in taxation and regulation. Disposing of our 8.84% corporate tax and 5% sales tax will go a long way in reviving our business climate. These are positive proposals and the Commission should be commended for recognizing the need to reduce or eliminate such repressive taxes. However, this step forward would be completely undercut by the Commission’s other major proposal: implementing a business net receipts tax (BNRT).
 
The BNRT is designed to tax all businesses—including service-oriented businesses. The BNRT taxes a company based on their income, minus their own purchases. While the Commission proposal of capping the BNRT at 4% may seem modest compared to the current corporate tax, consider the actual ramifications for businesses.
 
For example, if a company’s revenue for one month is $1 million, they would pay $40,000 in taxes each month—regardless of profit or loss. That $40,000 in taxes means nine or ten fewer employees for that business. Even worse, the BNRT is a hidden tax. Unlike current sales taxes, which appear on your receipt, the BNRT is concealed within the price of a product or service, making its true cost unknowable. In order to increase accountability and transparency, taxpayers deserve to know exactly how much they are paying the government—and how that money is being spent.
 
Another frightening aspect of the BNRT is that a business will be forced to pay the tax regardless of whether they make a profit. It will cost 4% more to do business here in California at a time when businesses can ill afford it.  What incentive will businesses in other states have to move to California when they will automatically have to pay a 4% tax regardless of profitability?
 
It may be argued that since the burden of taxation will be shifted away from individuals and placed on businesses, taxpayers will have more income to spend. However, there really won’t be a tax break for taxpayers as businesses will pass their tax costs onto their customers. The BNRT will be concealed within the cost of services and products so taxpayers won’t even know the true cost.
 
Citizens shouldn’t be fooled by the Commission’s bait and switch plan. Proposing tax reductions and eliminations in order to implement a potentially enormous hidden tax is not real reform. The 4% tax on all businesses will ultimately result in fewer jobs and decreased revenue, thus defeating the very purpose for which the Commission was originally created.
 
California has become the cautionary tale for the rest of the country. But California’s story is still being written; we have the opportunity to change our course and return our state to its rightful place as an economic power house. Some prognosticators may be questioning whether we will be the first state to “fail.” The only thing that has failed in California is our political leadership. I still believe in our unrivaled natural resources, unparalleled ingenuity, and unbridled vision for achieving the seemingly impossible. True tax reform means cutting taxes for struggling businesses and taxpayers while cutting spending for spendthrift politicians and wasteful government programs.
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Peter Foy is California Chairman of Americans for Prosperity, a Ventura County Supervisor and a successful business owner.