's April 15 again, and this year the average California working family will spend more on taxes than on food, shelter and clothing combined. After adding up all state, federal and local taxes, the average Californian this year will surrender more than 40% of his total income to government, according to the Tax Foundation in Washington.
Most families today need a second earner--not to support the house and children, but to support government. And finding a job is more difficult than ever because California's high corporate taxes continue to drive employers into more business-friendly states.
The Assembly will vote today on Gov. Pete Wilson's 15% across-the-board tax cut for families and businesses. This could not come at a more crucial time for the state. After four years of recession, California is finally pulling out from its worst economic tailspin since the Great Depression. The recovery is moving forward, but it is soft and cannot be sustained without tax relief.
To ensure that the recovery continues and to speed it along, government must work to identify and remove the barriers to economic growth and job creation that are holding us back. Just look at California's corporate tax rate: At 9.3%, it's the highest in the western U.S. In fact, three of the states we compete with directly and lose thousands of jobs to every year--Texas, Washington and Nevada--have no corporate taxes whatsoever. That puts California at a severe disadvantage in attracting new businesses, and it seriously undermines our ability to establish a foothold in the growing global marketplace.
A 15% tax cut, phased in over three years, would produce substantial new economic growth and prosperity for all Californians to share. Over the past three decades, the 25 states with the lowest tax burdens grew 33% faster than the 25 with the highest tax burdens. And a study released last month by the Hoover Institution shows that a 15% tax cut would create 250,000 new jobs in California over the next five years.
Despite these facts, and despite public demand for tax relief, critics are lining up against the tax cut. The most outspoken opponent, Senate Democratic Leader Bill Lockyer of Hayward, has indicated that he may block the bill on the ground that it violates "economic fairness." According to Lockyer, "It doesn't make sense to cut the taxes of the richest people of the state of California." That response is taken straight from the textbook of Class-Envy Politics 101. Lockyer has shot down so many tax cuts that he simply gives a preprogrammed "rich vs. poor" response to any substantial tax cut proposal. But this time he is flat-out wrong.
Because of California's progressive tax code and existing personal tax credits, the 15% across-the-board cut would actually provide a bigger proportional cut to the middle class than to the wealthy. Families earning $40,000 a year would see their taxes reduced by 29%, while those earning $100,000 or more would receive only a 16% reduction. And as for the poorest, 359,000 low-income families who currently pay taxes would be taken completely off the tax rolls.
Opponents also claim that the tax cut would take needed money away from an already underfunded education system. Again, the facts tell a different story. Over the last five years, spending on education has increased dramatically--by more than $7 billion. And under Proposition 98, K-14 spending will increase another $8 billion over the next five years, even with the tax cut.
But the best way to ensure that more money is available for education is by expanding the tax base through economic growth. And the best way to guarantee a future for our children after graduation is by stopping the flow of jobs from California into neighboring states.
If California intends to become competitive and join the race to attract new businesses and jobs, or at least hold the ones we now have, we had better start moving. Competition between states is only growing more intense--29 states cut taxes last year and 23 plan tax cuts this year. Meanwhile, California is standing by like a confused spectator, wondering where all the jobs have gone.
Making California a business-friendly state is important. But allowing people to keep and spend more of what they earn now is equally important. There is an undeniable and direct correlation between optimism and economic growth--they tend to inspire each other. When people have more money, they feel better and they spend more. When more money is spent, more jobs are created. And more jobs are the key to stronger families and better living conditions for everyone.
Democrats and Republicans should be able to agree that when the government asks citizens to hand over more than 40% of their total income, it is asking too much.