Guest Contributor
Lawrence J. McQuillan

Lawrence J. McQuillan, Ph.D., is director of Business and Economic Studies, and Anthony P. Archie is a public-policy fellow, at the California-based Pacific Research Institute.

Defeat Job-Killing Ballot Propositions
No on 63, 67, and 72...
[Lawrence J. McQuillan and Anthony P. Archie] 10/28/04

Howard Jarvis, the father of the modern tax-revolt movement, opined about ballot initiatives:  "I'd rather be governed by the masses than the asses."  Californians again have an opportunity to use their common sense and defeat three ballot measures that will kill jobs.

Proposition 63 will raise the marginal income-tax rate one percent on those earning more than $1 million.  The Legislative Analyst's Office (LAO) estimates that the tax will hit 25,000 to 30,000 people and raise $1.83 billion over the next three years for a mental-health bureaucracy.  But Californians have been told before that a tax-rate increase would raise more revenue, and then it never happened.

In 1991, Governor Wilson and state legislators agreed to raise taxes, adding two new personal-income-tax brackets.  This drove businesses and individuals to friendlier places.  Revenues fell by $2 billion over the next two years and didn't recover until taxes were cut.

Prop. 63 targets already overtaxed entrepreneurs and investors.  They comprise 0.6 percent of California's taxpayers but contribute 25 percent of personal income tax revenue-more than their fair share.  The tax will drive creative people and their money from California, resulting in decreased investment and job growth. 

The proposed phone tax also attacks entrepreneurship.  Prop. 67 will add a three-percent surcharge on telephone calls within the state.  The surcharge is limited to 50-cents a month, except for cellular calls, which will have no limit.  The LAO estimates the tax will raise $500 million a year primarily to fund hospitals and doctors.

Since the cell tax isn't capped, it could bludgeon this growing high-tech sector with new taxes, for a totally unrelated purpose, at a time when job growth is sluggish. 

Prop. 72, another job killer, will force businesses to "play or pay" for employee health insurance.  Employers with 20 or more employees will either pay directly for employee insurance (paying at least 80 percent of premiums) or pay a "user fee" to the state for state-purchased health insurance.  Firms with 200 or more employees must also cover dependants. 

The L.A. County Economic Development Corporation (LAEDC) estimates Prop. 72 will cover 1.8 million uninsured but cost a crushing $7 billion a year.  Kaiser expects the annual cost to businesses per newly insured employee to be $2,482 for individual coverage and $6,803 for family. 

Many firms cannot afford this expense.  Their options will be to stop hiring new workers, to lay off current workers, cut back on worker hours, outsource, move out of state, or go out of business.

Firms near the 20-employee or 200-employee thresholds will have a strong incentive not to hire more workers.  If Prop. 72 passes, says the LAEDC, 400,000 employees will be at risk for job loss.

Contrary to conventional wisdom, California is not a relatively high-tax state.  Its state and local tax revenues as a percentage of income equal the national median.  But it is a bad-tax state.  California's highly progressive tax rates disproportionately penalize success.

A Pacific Research Institute (PRI) study shows that California has the most progressive income-tax code for single taxpayers and eighth for married taxpayers.  Such severity produces slower economic growth and more tax-revenue volatility.

If Prop. 63 passes, further increasing progressivity, more than 8,000 California jobs will be lost in the first year alone, predicts PRI's Cal-STAMP, a statistical model of California's economy.

Also, labor regulations such as workers' comp, family leave, and the proposed health-insurance mandates effectively "tax" new hiring.  Propositions 63, 67, and 72 will add to California's already dysfunctional tax and regulatory structure, cutting economic growth and jobs.

Six in 10 Californians think the public-policy decisions made by voters through initiatives are better than the decisions made by Sacramento politicians.  In November, the people again have an opportunity to apply the common sense that the legislature often lacks and defeat job-killing Propositions 63, 67, and 72. CRO

§