Tax Increase Is No Solution

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The Newport Beach Chamber of Commerce Board of Directors announced its strong opposition to the Gov. Jerry Brown’s proposal to extend the increased rates for sales, personal income and vehicle license taxes for an additional five years to help balance the state’s $25 billion budget shortfall.

In its position announcement, the Chamber identified a general lack of fiscal restraint on the part of lawmakers as the chief reason for their opposition.

The level of spending is simply out of control. Two years ago the Legislature and then-Gov. Arnold Schwarznegger asked taxpayers for a Chamber-opposed “one-time temporary tax increase” to solve the state’s chronic structural deficit. Here we are before the most recent tax increases expire, being asked as taxpayers for yet another extension to solve the state’s growing budgetary problem – and we are told if we don’t agree, the state will have no alternative but to drastically cut state funded services such as higher education, public safety and health and welfare spending.

The Newport Beach Chamber of Commerce has consistently maintained that only a strong economy will generate the level of tax revenues needed to sustain the state’s necessary programs. The state needs continued investment in economic activity and jobs in the private sector to enhance state revenues. The Chamber is all about investment. Investment in our businesses will encourage employers to stay and expand in California.

In order to achieve and warrant investment in our state, business needs a stable, predictable tax environment in which to operate. There must be a restoration of the public’s trust in the stewardship of taxpayer dollars through transparency, spending restraint and accountability.

Taxes matter to business. Business taxes affect business decisions, job creation and retention, plant location, competitiveness, and the long-term health of a state’s economy. Most importantly, taxes diminish profits. If taxes take a larger portion of profits, that cost is passed along to either consumers (through higher prices), workers (through lower wages or fewer jobs), or shareholders (through lower dividends or share value). Thus a state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth.

The Chamber recognizes the severity of the problem and encourages the Legislature and the governor to avoid the popular temptation to want to inflate revenue projections or borrow money from the future. The state’s Legislative Analysts office has a solid track record of predicting revenues. The Legislature and governor should work with the realistic projections and, once and for all, solve the problem.

The Chamber suggests that in the near term the state should use an across-the-board reduction in spending levels rather than targeting education or public safety specifically. The state should look to payments to those citizens who are here illegally as a source of more drastic reductions in spending. Additionally, the state needs to begin to address the issue of pension reform as it looks to balance future budgets.

The bottom line is that the proposal simply does not dramatically and fundamentally address remedying the problem itself. It merely seeks to apply yet another band-aid to the illness.

Richard Luehrs is the CEO of the Newport Beach Chamber of Commerce.

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