RIGONOMICS:’Equitable’ tax plan just won’t cut it

It’s normal in a political year for candidates to talk about an “equitable” tax system.

If you are on the far left of the Democratic Party and in control of both houses of Congress it is now time for you put your more “equitable” tax plan into place. The people who put Democrats in office, the left, have been complaining the rich keep getting richer and the poor keep getting poorer.

The truth is all boats have risen since the post-9/11 tax cuts of 2001.

But don’t let facts get in the way of a good political fight. No matter how well the economy has grown because of the tax cuts, you can not convince someone who believes the government’s jobs is to redistribute the wealth of others in order to make a more “equal” society.

If a country’s corporate tax rates are too high it will not attract that capital. When Ronald Reagan came into office and lowered personal tax rates from 70% to 28%, the U.S. became one the most competitive places on the planet to invest.

What the left does not realize is what the rest of the world has figured out: Lower personal and corporate taxes create jobs, which in turn grow the economy so everyone has a better standard of living.

When looking at the largest 30 economies in the world, who would think that since the Reagan tax cuts in the ’80s, the U.S. has gone from being one of the most competitive in the world to now, according to the Washington, D.C.-based Tax Foundation. Previously high tax rate countries like Sweden, Denmark and Norway have corporate tax rates 50% less than the U.S.

Our tax rates are 50% higher than “socialist” Scandinavia, and the Democrats still want to raise the rate! Europe and the former Soviet bloc countries have figured out lower tax rates actually bring in more revenue as a percentage of the Gross Domestic Product (GDP) than do higher taxes. In fact, while the U.S. collects 2.2% of GDP in corporate taxes, the other 29 countries collect 3.1% of GDP with much lower rates.

With world tax rates down, any increase in the U.S. rate will move more capital offshore, hurt the economy, and put people out of work. No matter; I predict higher taxes in the near future. The 2001 tax cuts have sunset provisions that if Congress does not act to extend, will automatically raise rates to pre-2001 levels. With Democrats squealing for a more equal tax system, do not expect to see any legislation that would keep taxes from going up, let alone legislation to lower taxes.

What is a concern for the country is a much bigger problem for the people of California. California has some of the highest tax rates in the country. Not only are we losing jobs to other countries, we are losing jobs to 0% tax states like Nevada, Texas and Florida.

Jobs are not the only thing we are losing. We are also losing some of our most productive citizens. Two baby boom business acquaintances in as many weeks have told me they are leaving California solely because of the high tax rates here and moving to 0% tax states. As one of them said: “When we were raising our son, I just paid my taxes and did not complain … I no longer feel I am getting anything out of sending that six-figure check each year.”

Expect more baby boomers to come to the same conclusion. These taxpayers are not the type California can afford to lose. You need 10 families of four making $80,000 per year to replace one high income earner who leaves for a more tax-friendly environment.

While politicians try to create a more “equitable” tax system, people and capital around the world will vote with their feet and move to where they think it is a more equitable system.