Tuesday, June 9, 2009

Should California's Businesses Foot The Bill?

There has been a lot of talk lately about California's mounting debt problems. We have seen everything from talk of cutting education and health spending to closing state parks, selling state assets and privatizing some of the state prisons.

All of these discussions tend to lead back to Proposition 13 and the effects it has on the state budget. Prop 13 effectively put a cap on rising property taxes until a property changes hands. That happens a decent amount for residences around the state. Sure, there are lots of properties that stay in trusts for generations and evade the rules, but for the most part the housing market is dealing with Prop 13. The big issue tends to be in the commercial world where properties can sit for very long periods before changing hands. Some argue that there should be more incentive to shift the tax burden to businesses and commercial property owners by changing Prop 13 to allow commercial properties to be reassessed. In my opinion, this would be a nightmare.

We already have some of the strongest prohibitions in the country when it comes to operating a business in California. Besides the environmental controls, massive permitting issues involved and the NIMBY attitudes of many communities, we might now face the idea that taxes need to be increased. If owners of commercial properties are faced with this they will simply pass on the increased cost to their tenants. These tenants will find doing business in California that much harder and consider other states that aren't so strict. Maybe the state starts to see some increases in revenue due to the tax increase but what about sales taxes, income taxes and business taxes? Those are bound to decrease as companies abandon California.

Would the last company to leave California turn the lights off please? If you hear so much as an inkling of this from your local representatives, give them an earful. The current system of governance in California has to change but you cannot find one silver bullet to cure it all. Businesses need to be at the forefront of leading California forward.

1 comment:

  1. Unfortunately, this thinking that CA businesses pay a huge amount of taxes and are leaving because of it is not true.

    A study by giant auditing firm Ernst & Young showed that, as of 2007, businesses in 34 states paid a higher share of overall tax collections than in California. California ranked 17th in tax collections as a percent of income in 2006, the most recent year data is available from the U.S. Census Bureau. That is hardly the worst and is a more accurate reflection of effective tax burden, said Justin Garosi, an economist with the Legislative Analyst's Office.

    In addition, a 2007 study by the Public Policy Institute of California showed that only a small number of businesses leave the state - and for many reasons other than taxes.(MediaNews 6/15/09)