Earlier this week we explained why California Democrats’ new budget plan is based on faulty assumptions and that the result will be a substantial net tax increase. Yesterday The Sacramento Bee’s Kevin Yamamura pointed out another problem with Senate President Steinberg and Speaker Perez’s fuzzy math:
Democrats have built their case for taxes this year on comparisons to current tax rates. But traditional analysis has made comparisons to existing law. What's the difference? Existing law takes into account scheduled changes in tax policy. Current tax rates are a snapshot in time and may have an expiration date, as is now the case.
Tax rates right now are at a higher level than they were three years ago. Democrats want to assume this higher level as a baseline for discussing their budget proposals. In their only chart spelling out impacts for individual tax filers, Democrats compared their 2011 policies to existing, higher 2010 tax rates.
For example, Democrats say they want to raise the vehicle-license fee rate to 1.65 percent when it currently stands at 1.15 percent. That's a softer comparison than to the 0.65 percent it will be next July under existing law. Using the Democrats' comparison results in a smaller tax hike.
At the same time, Democratic analysis suggests that Democrats' tax swap would drop the state sales tax rate from 6 percent to 3.5 percent in July 2011, a 2.5 percentage point decrease.
But existing law already drops the rate from 6 percent to 5 percent in July 2011. That means the Democrats' sales tax drop next July is only 1.5 percentage point less than what it would be under existing law. But Democrats assumed the 2.5 percentage point decrease in calculating what taxpayers would save in the second half of 2011.
Aside from the tax increases on energy, income, vehicles, and businesses, among the most problematic provisions in the Democrats’ budget is the proposed tax on online purchases, commonly referred to as the affiliate nexus tax. The affiliate nexus tax has rightfully been rejected in California in the past and was vetoed by Governor Schwarzenegger just last year. Despite what some proponents claim, the affiliate nexus tax is a tax increase that will put California web-based businesses and advertisers out of work, as has been evidenced in other states that have passed such legislation. Americans for Tax Reform applauds Governor Schwarzenegger for his opposition to this proposal and any budget that includes tax increases.
For a copy of the letter that ATR sent to California lawmakers today in opposition to the affiliate nexus tax, CLICK HERE.