California banned from raising taxes as state faces budget deficit and economic uncertainty – Orange County Register

This photo shows the California State Capitol building. (File photo by Anda Chu, Bay Area News Group)

After three consecutive years of record-breaking fiscal growth, inflation and higher interest rates are bringing public finances back to earth. The good news is that prudent budgetary planning by heads of state has built healthy fiscal reserves and withstood expensive, long-term spending commitments. We are not yet facing a budget crisis.

The bad news is that some lawmakers believe tax hikes should be the preferred alternative when revenue falls.

We do not agree.

The California Senate released a budget earlier this month that would include a $7 billion increase in corporate taxes to sustain state budget spending on education, safety net services and public safety programs. While we agree with some of the spending priorities announced by the Senate, we don’t think now is the right time to raise billions in taxes on our community’s economic engines.

The Senate proposal would subject certain companies to a corporate income tax rate of 10.99% – the second highest rate in the country. High corporate tax rates put Californian companies at a huge competitive disadvantage. The 49 other states would benefit from California’s decision to make itself less attractive to employers.

A thriving economy is the best source of income for important government programs. However, chasing away jobs would hurt the state’s bottom line rather than help working-class families. The United States recognized that its corporate tax rates were among the highest in the developed world, surpassing rates in the European Union and elsewhere.

California competes globally to attract and retain investment and employers. Raising the corporate tax rate while the rest of the world lowers tax rates is counterproductive. It doesn’t recognize this tax trend, throwing California off balance with economies looking to attract Californian investment and jobs.

A 2021 study by the Washington, DC-based Tax Foundation found that corporate income tax falls primarily on labor and that with every increase in the corporate tax rate, retail prices rise. A corporate tax hike impacts individuals through slower economic growth, lower wages, higher prices, fewer jobs and lower returns on retirement accounts.

Those taxes would be detrimental to California as the state fends off the prospect of an economic downturn. Voters in 2014 approved a constitutionally protected rain protection reserve to safeguard the state budget. In good times, the Legislature and Governor have contributed more than $30 billion to the bad times reserve. One of Gov. Gavin Newsom’s strategies for dealing with the drop in revenue is to stop building up reserves for rainy days. Though the Senate proposes a $7 billion tax hike, it proposes increasing reserves by another $1 billion.

California is an expensive place to do business due to its high cost of living, taxes and regulatory framework. In addition, we enjoy great benefits from a skilled and educated workforce, unmatched innovation and access to global markets. However, we should not take lightly the competitive environment in which our companies must operate; A further weakening of our investment climate will inevitably hurt prospects for job growth and economic stability.

Tax increases will send the wrong signals to job creation and investors in the state’s economy. Now is not the time to test California’s ability to withstand the effects of an economic downturn or recession by jeopardizing our economic success.

Blanca Rubio represents the 48th Assembly District. Paul Granillo is President and CEO of the Inland Empire Economic Partnership.