Supply Side Tax Cuts Coming to California??? Nah!

The final report from the Commission on the 21st Century Economy has completed the work that Governor Schwarenegger commissioned them to do via executive order, specifically that they “set the commission to the task of evaluating and proposing reforms of California’s tax system, to realize a revenue stream that is more stable and reflective of the state economy.” The biartisan committee completed their work and has submitted it to the Governor. No future commission meetings are scheduled, but presumably the Governor intends to pitch the series of recommendations to the legislature.

First of all, this bill is dead and will not be going anywhere. Secondly, the primary issue I have with this topic is the principles that conservatives need to have when they enter the discussion of paying for something with government money.

I have studied every nook and cranny of this tax proposal, and oppose it despite it obviously having some very good elements. Fundamentally, my basis for opposing it is this:

The very premise behind the commission is flawed. We do not need a “revenue neutral” tax overhaul, and to pursue policy changes that concede revenue neutrality from the onset beg for our opposition. Replacing a capital gain tax with a new business tax are not “supply side”; they are just re-shuffling the cards in the same deck. We do not have a revenue problem in California, and we never have. We have a spending problem. To lower marginal income rates is good. To lower sales tax is good. To lower corporate rates is good. But as long as the premise is that the size of government must be maintained, they have to replace that revenue with something else (in this case, a Business Net Receipts Tax). We conservatives have to oppose this. We can and should support the portion of this plan that seeks to cut taxes; but it is only half-right. They replace those taxes with very unfriendly business taxes. And in fairness, they have to, because they started the conversation by conceding that spending not be cut (and therefore that revenue must be maintained). Our tax plan and tax conversation must look like this:

(1) The size of government and spending must be cut by X …

(2) Once we have done that, we can look to cut taxes by X, and stimulate growth and prosperity more efficiently.

Simple, huh?

I believe a marginal income tax reduction, capital gain elimination, and corporate tax decrease are all part of this stage 2. But until stage 1 is done, the rest is just lipstick on a pig.