Why Do California’s Tax Problems Continue?

Why Do California’s Tax Problems Continue?

It’s the classic adage made famous from the movie Robin Hood: “Rob from the rich and give to the poor.” Although Robin Hood may have meant well and his actions noble, the idea of taking more from the rich to give to the poor is not always wise when it comes to taxes. Besides taking more than the fair share from high earning individuals, which is egregious enough, taxing the rich makes for a never ending roller coaster ride when it comes to tax stability.

California’s Tax Problems Are Self-Inflicted

That is the problem California continues to face as it tries to “soak the rich” in an effort to overcome the state’s troubled economics. However, as lawmakers continue to play with income tax revenue, it’s the state continues to suffer, and in this case, the rich are getting the worst of the damage.

Leave the Rich Alone

So what should the governor of California do? Instead of relying on tax hikes to the rich, it’s time to make some real changes that will actually have a lasting impact on the unsettled tax situation in the state. The tax system needs real reform in order to become stabilized. Relying on the rich is not only unfair to those individuals who earn more money, but it’s also very unreliable as many of the state’s highest earners have incomes that are constantly changing and sometimes for the worse.

The Rich Are Definitely Getting Soaked

The problem is, is that would require a lot of explaining to the state’s middle-income population; and of course, it’s just easier to take more from the rich. However, relying on the rich and their often-unstable incomes can be dangerous. In 2012 numbers show that the wealthiest 1 percent of earners were responsible for slightly more than half of the state’s entire income tax revenue collected. That’s an increase of nearly 9 percent from the previous year when they paid 41.1 percent.

More Harm Than Good

Although the state’s tax hike for the rich has clearly brought in more money, the question remains – is it worth it? By depending on the rich the state simply increased the volatility of the tax system even more. By implementing real reform, the state could do itself a lot of good in the business world. By lowering the state’s sales tax rate and easing the burden on high-income earners, California might actually make the state more attractive to businesses, job-creators and even investors.

Sticking to the Plan

However, it appears that Gov. Jerry Brown is happy to continue collecting from the rich and saving up the extra cash for a rainy day fund. Brown’ focus is on capital gains, which he apparently plans to stash away for future emergencies or debt retirement, instead of pushing for new programs.

Change Not Likely

The tax battle will likely never end, especially as the state’s politicians remain divided on how to fix the system. One thing seems clear, though; it doesn’t appear that the government plans on easing up on the rich anytime soon, not as long as they continue to bring in the bulk of the state’s tax revenue.

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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

 

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