gilmoure asks, in response to my post:
Are taxes now impossible to raise? What about corporate taxes? Can those go up or is it too easy to be based outside of CA/USA?
My claim about the difficulty of raising taxes is a legislative and political one, not an economic one.
Legislatively, you’ve got hurdles. In California, for example, raising property taxes requires a two-thirds majority vote. Not gonna happen.
Politically, you’ve got a few hurdles. First, and I’m again going to look specifically at California, you’ve got a lack of political will by Democrats to cut spending coming against Republican refusal to raise taxes. From a strictly financial perspective, both sides are going to have to budge. Completely closing all prisons, schools, and state offices would not be sufficient to close our budget gap. Californians have been big on buying stuff, not so big on paying for it. This isn’t even a recent phenomena, and it’s the cause of the second political hurdle: every politician (from both parties) has played the role of offering spending programs for their party constituents without adding the political risk of needing to find a sustainable method to pay for the programs. This has actually been a good strategy for reelection, and politicians seem afraid of changing their MO.
The economic constraints are not nearly as big as the above hurdles. Raising sales taxes will hurt the majority of the population living paycheck to paycheck. So too will a general increase on income taxes. Remember the Laffer curve that was popular by Reagan supporters? Right now, that should be on the minds of all legislators. Increasing the tax rate on the majority of Californians will actually worsen California’s balance sheet. However, there’s one group that’s clearly not past the maximum of the Laffer curve: the rich. Increasing the income taxes on only the rich will almost certainly increase revenue. There will be other consequences, but these will be mostly political. Even the wealthy, as a block, aren’t as mobile as they were in good times. Absent a bailout or default, though, California cannot balance their budget without disproportionately increasing taxes on the rich. This is a fiscal reality, and it will trump just about everything else.
Corporate taxes are similar to taxes on the middle class. They will come out of the paychecks of workers. They will also come out of profits and bonuses, but the pain will be most realized by the workers. Some of this will be a consequence of less hiring, but some will be because of pay and benefit cuts. Corporate taxes are a tricky beast, so analyzing the consequences are difficult (nobody knows the entire corporate tax code. This is illustrated by the fact that several recently exploited loopholes have been on the books for decades). For it to actually be effective (fiscally, not politically, or even economically), you’ve got to make a corporate tax increase a not-so-stealth tax on the rich. The problem I have with corporate taxes is that there are so many side effects. This too is more of a legislative/political problem than an economic/fiscal one.
