Here’s a Smart Alec We Ought to Heed - Mountain News : Editorials

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Here’s a Smart Alec We Ought to Heed

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Posted: Thursday, May 30, 2013 12:00 am

There’s an old saying that nobody likes a smart alec. Government leaders in California have just found a reason not to like one in particular.

This smart alec is both—smart and an ALEC. Those letters stand for the American Legislative Exchange Council, an organization headed by economists with some impressive credentials.

They include Dr. Arthur Laffer, named in 1999 by Time Magazine as one of the 20th century’s greatest minds; former Heritage Foundation budget expert Stephen Moore; and Jonathan Williams, a tax-policy expert whose writings have appeared in The Wall Street Journal and Forbes Magazine.

Last week ALEC released its sixth annual Rich States, Poor States report, ranking states for their business climates and the effectiveness of their economic policies.

The 128-page study ranks California 47th overall among the states, down from 38th last year.

ALEC’s analysis is based on 15 key economic indicators, including states’ personal and corporate income tax rates; how those rates penalize high earners; the burdens residents bear from property, sales and other taxes; whether the states have inheritance taxes; legislated tax changes in the past two years; states’ debt service as a share of tax revenue; the number of public employees per 1,000 residents; the cost of workers’ compensation; the state minimum wage; and whether the states have right-to-work laws in place.

California’s situation is so bad that ALEC devotes an entire chapter to it, outlining problems like its growing number of municipal bankruptcies, including San Bernardino, where the main driver is personnel expenses and pension costs. The latter are expected to rise from 13 to 15 percent of the city budget by 2016.

“California’s government has imposed upon its citizenry the most onerous business environment in the United States,” the report says.

“The after-tax rate of return for doing business in California lags so far behind the return in neighboring states (let alone in other no-income-tax competitors such as Texas, Tennessee and Florida) that it’s no wonder companies, people, investments and tax revenues are fleeing the state,” it adds.

States with lower tax rates are drawing off California’s economic vitality and presenting “the very serious prospect that California may be hollowed out like Detroit. It is a wonder that California has any entrepreneurs or venture capitalists left,” the report says.

To demonstrate how deep a bite this state puts on high earners—people who create jobs—the report says in 2009 (the height of the recession) California taxpayers with an adjusted gross income of more than $1 million (just two-tenths of 1 percent of taxpayers) paid 24.2 percent of all personal income taxes. The top 3.8 percent, who earned at least $200,000, paid 54.5 percent of the total.

Such numbers inevitably have consequences. The report says that from 1993 through 2010, California experienced a net outflow of 882,468 families, and a corresponding loss in adjusted gross income of $45.4 billion.

And yet Californians approved another income-tax hike last November—ostensibly for schools—projected to raise from $5.4 billion to $7.6 billion between 2014 and 2018.

“Many in California are infuriated that these revenues are now being diverted to the state’s pension fund,” the ALEC report says.

The report covers a wide array of California’s fiscal failings, well beyond what’s outlined here. For those who wish to read it, the report is available online.

As its authors see it, California is on a road to disaster. The needed first step to avoid it is a thorough overhaul of the state’s tax system. Given the current makeup of the state’s political leadership that change is unlikely to happen, because though term limits rotate the people who populate our government it does nothing to change the philosophies they hold.

We urge our readers to do their civic duty and learn about the candidates who seek their votes, and then support those who have a vision for needed change and a commitment to work for it. If they won’t, there’s no reason to suspect anything better in our state’s future.

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1 comment:

  • chuck posted at 10:05 pm on Thu, May 30, 2013.

    chuck Posts: 16

    I would like to direct every reader's attention to the current Forbes Magazine cover story , Meg Whitman the person that should have been elected Governor.All those Jerry Brown supporters can be really proud of their state!