Los Angeles Business Journal

California Trapped in State of Rising Taxes?

OP-ED By Arthur F. Rothberg Monday, December 10, 2012

With the election now in the rear-view mirror, the media has shifted its attention to the pending “fiscal cliff.” This refers to a combination of automatic federal tax increases and spending cuts that most economists say will push the United States back into an economic downturn (and maybe even another recession) next year if they are not averted before the end of this month.

But for Californians — and California business owners, in particular — the fiscal cliff might better be described as an abyss.

Along with all Americans, we are facing the potential expiration of the Bush tax cuts. This will increase marginal tax rates for the top two income brackets, phase out exemptions and deductions for taxpayers in those brackets, and raise the tax rate on capital gains and dividends for everyone.

In addition, a new 3.8 percent investment surtax will kick in next year for upper-income individuals and couples, thanks to Obamacare. And, of course, Proposition 30 will raise the California sales tax by a quarter of a cent for four years starting next year and increase state income taxes for anyone making at least $250,000 a year by up to three percentage points for seven years.

This additional tax is retroactive to the start of the 2012 tax year, by the way, so prepare to deal with it this coming April.

Locally, we have the city of L.A. gross receipts tax. The Los Angeles Area Chamber of Commerce called this the “No. 1 tax complaint of L.A. businesses” and noted that the city of Los Angeles has the highest gross receipts tax rate in Los Angeles County and one of the highest in the nation.

In addition, the Los Angeles City Council recently voted to ask residents to boost the local sales tax by another one-half percentage point. If voters approve this increase in March, our city’s sales tax (at 9.5 percent) will become the highest among the nation’s 10 largest cities (we would be tied with Chicago).

Given the relatively wide margin (eight points) by which Proposition 30 passed, it would appear that Californians are prepared to bite the bullet and pay ever-higher taxes in an effort to get our state’s finances under control. But are higher and higher taxes, with literally no end in sight, really the answer to our fiscal problems?

Real-world experience — and frankly, just a little common sense — would suggest that the answer is an emphatic “no!” This is especially true when we’re talking about raising taxes on upper-income individuals.

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