Living Within Our Means

California should spend no more than it raises in taxes (except for long-range infrastructure projects suitable for bonds). Further, California should adhere to a policy of not raising taxes, barring a true (and rare) emergency. State government should budget based on existing taxes, rather than proposing increased expenditures fueled by increased taxes. The natural growth of the state’s revenue, as our population and economy grow, is enough for our state’s reasonable spending needs. We have to learn to live within our means. Others are constantly imagining new spending programs and proposing higher taxes to pay for them. It requires discipline to spend no more than we have, and a respect for the fact that the government doesn’t own the revenue it collects—the people do.

Comparative State Tax Burdens

State and Local Taxes

• California - 11.4% (#4)

• NY - 12.6% (#1)

• NJ - 12.3% (#2)

• AZ - 8.9% (#34)

• TX - 7.5% (#47)

Property Taxes (average percent of market value)

• California - 0.81% (#34)

• NY - 1.64% (#11)

• NJ - 2.38% (#1)

• AZ - 0.80% (#36)

• TX - 1.90% (#6)

Highest-Bracket Income Tax

• California - 13.3 (#1)

• NY - 8.82% (#8)

• NJ - 8.93% (#6)

• AZ - 4.54% (#40)

• TX - 0 (#51)

Gas Tax (cents per gallon)

• California - 53.5 (#1)

• New York - 42.64 (#3)

• NJ - 14.50 (#49)

• AZ - 19.00 (#43)

• TX - 20.00 (#42)

Income Tax at $50,000

• California - 4.34%

• NY - 5.46%

• NJ - 2.54%

• AZ - 3.06%

• TX - 0

Sales Tax

• California - 7.5% (#1)

• NY - 4.0% (#38)

• NJ - 7.0% (#2)

• AZ - 5.6% (#28)

• TX - 6.25% (#12)

Sources: Tax Foundation, Forbes, American Petroleum Institute

Adopt Business Tax Reform to Incentivize Hiring People in California

Multi-state tax rules should encourage hiring in California. Many companies do business across state lines. They have income from many sources. Each state wants to tax that income. Some states simply apply a percentage formula, depending on how much of the business' product is sold within the state. For agriculture, extractive industries, thrift and banking industries, California uses a more complex formula. It includes reference to the numbers of employees in California as opposed to other states, the amount of property (including real property) owned in California as opposed to that owned in other states, and the amount of sales made in California. Since California's business tax is high, 8.86%, the 8th largest among the 50 states, the result of using this three-factor test is to create an incentive for companies with operations in many states not to expand employment in California. California should go to the single-factor test, using sales, for all businesses, as other states have done. This removes the tax penalty for expanding employment, or building plants, within California.

Here are the states that have already made this kind of change: New York, Texas, Massachusetts, Illinois, Oregon, and Arizona.

Eliminate Taxes on Productive Equipment

After 2003, California became one of the very few states that taxes machines employers purchase to make products. Forty-four other states exempt manufacturing equipment from their sales or property taxes, 20 others explicitly exempt research equipment. In 2014, this tax was partially repealed. The state should repeal this tax in its entirety. California should apply its tax to final products, not the machines that are used to manufacture those products, or businesses will locate in other states that don't tax the means of making goods. This will also result in higher employee productivity in California, which should increase employee wages. The data from the 2014 changes show that this change will gain revenue for the state, not lose it.

File One Income Tax Return, Not Two

Hours are wasted by Californians having to fill out a separate income tax form, different from their federal returns. For individuals, the state income tax should be a set percentage of what the individual pays in federal income tax. The only departures from this should be what federal law compels: for instance, that interest on federal bonds and the interest earned on bonds issued by other states cannot be taxed by the states.

Preserve The 2/3 Requirement for Tax Increases

Under current law, any tax increase requires a 2/3 vote, and that should continue. Otherwise, California will increase its taxes even more. We already are the state with the highest marginal income tax rate. California is not so unique in requiring more than a majority vote for tax increases, though those wishing to spend money often try to say we are. These other states require 2/3:  Arizona, Arkansas, Florida, Louisiana, Oregon, South Dakota; these other states require 3/5: Delaware, Mississippi, Nevada; this state requires 3/4: Oklahoma.