The Chairman's Report August 7 2020

Why California Needs To Rely More On Sales Taxes

Gerald Parsky is the chairman of Aurora Capital Partners which is based in California.  In 2009, Mr. Parsky chaired a bipartisan commission which recommended California reduce its state income tax rate and expand the sales and use tax to include taxing services.

On July 10, 2020, the Wall Street Journal published "California Wants a Federal Bailout?  Tax Reform Must Come First".

Mr. Parsky pointed out the following:
 

• California is facing a $54 billion budget deficit, equivalent to 37% of the total budget
• Governor Newsom is blaming the problem on COVID-19 shutdowns
• The unemployment rate is officially 16.3% but may rise as high as 24.5%
• Californians’ personal income is predicted to decline by at least 9%
• The result is a $41 billion decline in revenue to the state
• California housing costs are about 2.5 times the national average and it has a costly regulatory environment for businesses
• In 2019, California’s population grew by only 0.2%, the lowest annual rate since 1900
• A survey of California residents showed a whopping 53% of them are considering leaving the state

Mr. Parsky is recommending before the federal government just writes checks to California, it must require California to institute reforms like his commission proposed.  He concludes his article by saying, “Comprehensive tax reform would be a powerful antidote to those budget problems.  It would put the state’s finances on stronger footing and make California a more attractive destination for investment and entrepreneurship”.

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The FAIRtax & California

If California did an analysis of the type of tax plan that would fund their state government in the most efficient way possible and help both employers and employees in California, they will find a state version of The FAIRtax to be the best option.  That’s exactly what Georgia, Alabama and Nebraska found and are working to implement.

Evasion

The increasing evasion of the federal income/payroll tax is one of the major reasons California needs to change its tax system.  Californians paid over $234 billion in 2017, about 15% of the national total of income/payroll taxes collected.  People who evade federal income taxes also evade their state’s income tax because the states and the IRS share data.  If, as Professor Cebula’s study indicates, the evasion rate is around 15%, the cost to California would be close to $40 billion.

The following is from a report entitled “Addressing The Tax Gap” published by the California Board of Equalization.  The Board of Equalization (BOE) administers 34 tax and fee programs, 32 of which produce revenues of $50.7 billion annually for the state.  The sales and use tax is the largest tax program, comprising over 83% of the total revenues.  This plan focuses on the sales and use tax gap:
 

• The Sales and Use Tax Department (SUTD) produced revenues of about $42.2 billion in fiscal year 2009-10
• We have estimated the taxes paid, amount to about 95% of the total taxes owed
• The tax gap is estimated to be about 5% of $42.2 billion, or approximately $2.3 billion.

There are 3 major components of the tax gap:
 

1. Use tax liabilities - businesses and individual consumers not required to be registered
2. Nonfilers/tax evasion
3. Registered taxpayers - under-reporting and non-payment

This study establishes, in California, evasion is much less of a problem with the sales tax than with the state income tax.  Evasion and the resulting loss of income is a problem which will only grow for both the federal government and for all of the states who rely on an income tax to fund their government operations.

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Fairness

Although California politicians routinely complain their lowest income residents are not being treated fairly, they ignore the negative impact on these citizens caused by the state sales tax which ranges from 7.25% to 8.25%, depending on where you live.

The California sales tax exempts most food purchases and medical expenses. However, just about every other purchase, including used items, is subject to the tax.  If California politicians were really concerned about their low-income citizens, they would be seriously considering putting in a state version of The FAIRtax.

Here is why:
 

• The prebate would exempt many of their lower income citizens from paying any sales tax at all
• Eliminating the state income tax would encourage growth in private industry; leading to more and better paying jobs; leading to more spending and more revenue to the state coffers
• Like people everywhere, the great majority of California citizens say they want a good job paying enough to provide a decent standard of living for their families.  What they’re really saying is they want to have enough left over after taxes to provide a good living for themselves and their families

Competitive Advantage

California is losing business to Nevada.  One of the reasons is Nevada doesn’t have a state income tax.

It’s been shown conclusively, states who don’t have a state income tax are more attractive to both businesses and individuals.

California has a marvelous climate.  For decades, this has been enough to attract people to the state in spite of its broken tax system.  But now the system has become so badly broken, many Californians are looking to flee the state to escape its oppressive taxation.

The stark reality is fewer and fewer people believe they can maintain their financial solvency in the “Golden State”.  For them, the choice is simple.  Move out of state or suffer financial ruin.

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Conclusion

Winston Churchill said, “You can always count on Americans to do the right thing, after they’ve tried everything else”.

The Ruling Class in California and The Ruling Class in D.C. share the same attitude, their own best interests are more important than the people’s best interests.  Their only worry is the people will catch on to what they’re doing, at which point they can no longer get away with it.

Why would any government not want to have a tax system, The FAIRtax, allowing its Citizens to be more prosperous and less dependent on government?  The answer to that may be one most of us don’t want to confront.  Many in government savor the idea of citizens being dependent on the government. That gives the government the power and control over people’s lives they otherwise wouldn’t have.

The FAIRtax benefits the American people and our economy.  The choice is simple; do you want to benefit the American people or The Ruling Class and their minions in D.C.?
 

Demand Congress To Pass
The FAIRtax—the only “Fair tax”!

The author George Bernard Shaw said these words in a play he wrote, "You see things; and you say 'Why?'  But I dream things that never were; and I say 'Why not'?”

Isn’t it time for us to ask, “Why not?” 

President Trump, Embrace The FAIRtax, the only real tax reform!  Stand up to the Swamp.  They will oppose you anyway because they see you as a threat.  What have you got to lose?

The truth is the truth!  Remember, if we don't continue to tell the truth and demand a change, then George Orwell's "1984" quote may foretell our children's future: “If you want a picture of the future, imagine a boot stamping on a human face, forever"

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Thank you for staying FAIRtax strong!
 
Yours In Liberty!   Yours In Freedom!

Steve Hayes
Chairman, Americans For Fair Taxation

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