February 2002

Table of Contents

Cal-Tax Home

Email Editor

Guest Commentary 

Businessman Bill Simon seeks the Republican nomination for governor in the March 5 primary election. This essay on taxes was written for Cal-Tax Digest.

Not only do I oppose tax increases, I will pledge that the overall rate of taxation in California will go down in a Simon governorship. I have been endorsed by the Howard Jarvis Taxpayers Association and the California Tax Limitation Committee.

How a state conducts its tax policy is a reflection of how well its leaders understand what truly drives the state’s and the country’s economic engine. Many taxpayers perceive California’s tax system as capricious and antagonistic. The problem is in the state’s tax policies, which need fundamental reform.

Specifically, I would look at across-the-board tax cuts that are proven economic and job stimulators. I have already proposed a cut in the capital gains tax to a maximum of 5 percent from the current maximum of 9.3 percent. Furthermore, I would support efforts at tax simplification designed to make our tax system a simple and neutral revenue collection system rather than a complicated mess with excessive compliance and administrative costs.

Budget Outlook

I have proposed a complete and specific plan of action for getting California’s fiscal house in order. Last October I was the first to call on the governor to bring the Legislature into special session and address an obvious budget crisis. At that time, I called for current year reductions, including the elimination of “pork projects,” phantom employees, and new programs. Subsequently, I have presented a complete budget plan that, if enacted, would balance the state’s budget without a tax increase, without gimmicks, and without borrowing against the future.

State spending must be controlled. In the last three years, spending has increased by 37 percent while the population increased by 5 percent. This spending binge was fueled by a spectacular and unsustainable increase in tax revenues associated with capital gains and stock options. The fact is, state general fund tax revenues over the last 25 years have grown, on average, by 8 percent per year. This underlying annual revenue growth should provide ample money for state government.

My plan cuts current-year spending by $5.3 billion and budget-year spending by $6.7 billion. This yields a general fund budget of $75.9 billion in expenditures in fiscal 2002-03. Such a budget in fiscal 2002-03 would also provide the state the ability to start making investments in its infrastructure and allow important adjustments in the tax structure beginning in fiscal 2003-04.

Economic Stimulus

At the present time, increased taxes are the biggest threat to the economy. An increase of 1 percent of personal income taxes reduces income growth by over 3.5 percent. There is much to be done to make California a place where a healthy business climate leads to investment and opportunity for all the state’s citizens.

First, the capital gains tax rate in California is one of the highest in the country and should be cut immediately. The capital gains tax is nothing but a tax on the movement of capital. Reducing it will not reduce tax revenues, but increase them because additional capital will move into productive investments.

Second, we need to repeal job-killer bills that have been enacted in the past three years. This includes legislation exposing employers to lawsuits, legislation imposing new bureaucratic rules on employers, and legislation infringing on property rights.  Additionally, costs associated with the state’s workers’ compensation system have soared, and this year’s legislation increasing benefits without a corresponding reduction in system costs is another tax on businesses. Reform is necessary.

Third is the need to change the state’s regulatory atmosphere. It is time for a thorough review of the Endangered Species Act and the California Environmental Quality Act, not to repeal them or reduce real environmental protection, but to ensure that they are used to protect the environment and not simply weapons for lawsuits aimed at stopping development.

The fourth step is careful consideration of tax credits, some are good, and some are not. The manufacturers investment credit is a success. The sunset of the credit should be repealed and the credit should be made consistent with other credits. However, frequently proposed credits simply represent one interest attempting to gain a competitive advantage or an attempt by politicians to reward or punish economic activities.

Finally, I propose that we find new mechanisms and incentives for private capital to invest in rebuilding our state. By some estimates, California needs $175 billion in education, transportation, water, and park facilities over the next 10 years. Quite simply, there is no way that California can borrow or tax enough to pay for this need.

Removing Tax Traps and Treating Taxpayers with Fairness

There is an urgent need to reform the administration of taxes in California. I believe that taxpayer rights need strengthening and would support legislation to do so. In addition the boards that administer the state’s taxes need to become less antagonistic toward taxpayers. California tax administration has been ranked (in CFO magazine surveys) as the least friendly toward taxpayers among all states. California stands out as the place where the bureaucrat still regards the taxpayer as the enemy.

I favor federal and state tax codes conformity. This includes net operating loss carry-forward provisions and 401 (k) pension investment provisions. I am supportive of addressing the unitary combination issue. I would oppose taxation of intangible business assets. I oppose shifting governmental costs previously bourn by taxes to fees. I oppose the imposition of a split-roll property tax. I believe the sales tax should not be applied to Internet transactions.