Please ensure Javascript is enabled for purposes of website accessibility

West Bank Town Becomes ‘Big Prison’ as Israel Fences It In

3 days ago

Trump Says He’s Willing to Let Migrant Farm Laborers Stay in US

3 days ago

US Electric Vehicle Tax Breaks Will Expire on Sept. 30

3 days ago

Eyeing Arctic Dominance, Trump Bill Earmarks $8.6 Billion for US Coast Guard Icebreakers

3 days ago

Trump’s Sweeping Tax-Cut and Spending Bill Wins Congressional Approval

3 days ago

Americans Celebrate Their Independence With Record-Breaking Travel Numbers

4 days ago

US Supreme Court to Decide Legality of Transgender School Sports Bans

4 days ago

Nvidia Set to Become the World’s Most Valuable Company in History

4 days ago

Poll: 41% in US ‘Extremely Proud’ to Be American, Near Historic Low

4 days ago
Proposed Sales Tax on Business Services Has Horrible Timing
gvw_calmatters
By CalMatters
Published 6 years ago on
May 27, 2019

Share

California’s elected leaders are enjoying the fruits of a go-go economy, with record surpluses and record spending on education. So, naturally, there’s talk of tax increases.

Opinion

Loren Kaye
Special to CALmatters

Californians have enjoyed nearly 10 years of economic growth, and one of the biggest beneficiaries has been the state budget.

Since the depths of the recession the state budget has increased by 82%. That’s more than $95 billion. Compare that to the recession years when governor and legislators were forced to cut tens of billions of dollars in spending.

Healthy reserves and more spending on schools: what could go wrong?

Plenty. What goes up will inevitably crash down. Gov. Gavin Newsom earlier this month pointed to economic “headwinds.”

A Thinly Veiled Effort to Raise Taxes

California’s state budget is notoriously volatile. The top 1% of earners pays nearly half of all income taxes. These taxes provide 70% of all general fund revenues. The Newsom administration forecasts that a moderate recession could reduce state revenues by $70 billion over three years.

A handful of elected officials and deep thinkers believe the answer to this volatility is to impose a new state sales tax on services. They say we need to “modernize” our state tax code. That means adding a sales tax to services like auto repair, accounting, attorneys, architects, advertising. And that’s just the “A”s.

My organization, California Foundation for Commerce and Education, dug into this claim, and asked Encina Advisors, led by Justin Adams, a Stanford-trained economist, to determine its validity. We found:

  • A state sales tax on services would not meaningfully reduce budget volatility, no matter how you slice it. We looked at a variety of proposals that have been introduced in the Legislature in recent years and projected their impact on California’s budget revenue in future years.  None of the proposals would have meaningfully reduced budget volatility.
  • The primary driver of California’s budget volatility is the state’s reliance on the personal income tax. Unless lawmakers and voters commit to modifying the personal income tax rates, they’re not serious about addressing budget volatility.

We are inevitably led to conclude that, far from being an answer to budget volatility, a tax on services is merely a thinly-veiled effort to raise taxes and pull even more revenue into state government.

Finally, and most troubling, a sales tax on services would make California’s affordability crisis worse.

Talk of New Taxes Should Be Political Malpractice

We found that adding a sales tax on services would increase the costs to consumers and businesses of services they use every day from lawn care to lawyers, child care to morticians. Limiting the new sales tax to services purchased by businesses won’t shield consumers. Businesses will simply pass along those costs.

Worse, these added costs to businesses are baked into prices every time the product or service moves along the production chain, a dynamic called “pyramiding.”

We found that a 5% sales tax on business services would increase the cost of a typical new house by 3%, from $546,000 to more than $562,000. This comes from adding a tax to the contractors, attorneys, architects, real estate, mortgage financing and other services that go into the cost of a house.

The costs of building new schools or expanding or repairing infrastructure would be similarly boosted by a higher services tax.

With record budget surpluses, talk of new taxes should be political malpractice. Since a services tax doesn’t itself reduce budget volatility, dressing it up as a tax reform is like painting stripes on a donkey and calling it a zebra.

Loren Kaye is president of California Foundation for Commerce and Education, Loren.Kaye@CalChamber.com. He wrote this commentary for CALmatters, a public interest journalism venture committed to explaining how California’s Capitol works and why it matters.

DON'T MISS

What Are Fresno Real Estate Experts Predicting for 2025 and Beyond?

DON'T MISS

First California EV Mandates Hit Automakers This Year. Most Are Not Even Close

DON'T MISS

TikTok Building New Version of App Ahead of Expected US Sale, the Information Reports

DON'T MISS

Hamas Government Office Rejects US Accusation of Involvement in Gaza Aid Site Attack

DON'T MISS

Death Toll From Texas Floods Reaches 78, Trump Plans Visit

DON'T MISS

Trump Calls Musk’s Formation of New Party “Ridiculous” and Confusing

DON'T MISS

Fresno DUI Driver Slams Into CHP Motorcycle, Tow Truck on Highway 99

DON'T MISS

Russia Downs 120 Ukrainian Drones Overnight, Defense Ministry Says

DON'T MISS

Israel Sends Delegation to Qatar for Gaza Talks Ahead of Netanyahu Trip to US

DON'T MISS

San Luis Obispo’s Madre Fire Grows to Nearly 80,000 Acres, 30% Contained

DON'T MISS

Musk Announces Forming of ‘America Party’ in Further Break From Trump

DON'T MISS

Death Toll From Texas Floods Reaches 59, Including 21 Children

UP NEXT

How Trump’s ‘Big, Beautiful Bill’ Will Make China Great Again

UP NEXT

July 4th Quiz: Test Your Knowledge of the Founding Fathers

UP NEXT

Presidential Election Reveals Big Shift in California Voting Patterns. Will It Last?

UP NEXT

From Victims to Perpetrators: Israeli Soldiers’ Nazi Comparisons and the Unfolding War Crimes in Gaza

UP NEXT

Dear Mayor and City Council, Fresno’s Housing Bottlenecks Are a Modern Form of Redlining

UP NEXT

A Path Forward on Immigration Reform That Strengthens America

UP NEXT

Israel Faces Genocide Accusations Amid Gaza Food Aid Killings

UP NEXT

I Detest Netanyahu, but on Some Things He’s Actually Right

UP NEXT

Much of LA’s Community of Immigrants Is Hiding, Leaving a Hole in the Fabric of the City

UP NEXT

Things Netanyahu Might Say if Injected With Truth Serum

Trump Calls Musk’s Formation of New Party “Ridiculous” and Confusing

6 hours ago

Fresno DUI Driver Slams Into CHP Motorcycle, Tow Truck on Highway 99

13 hours ago

Russia Downs 120 Ukrainian Drones Overnight, Defense Ministry Says

13 hours ago

Israel Sends Delegation to Qatar for Gaza Talks Ahead of Netanyahu Trip to US

13 hours ago

San Luis Obispo’s Madre Fire Grows to Nearly 80,000 Acres, 30% Contained

13 hours ago

Musk Announces Forming of ‘America Party’ in Further Break From Trump

13 hours ago

Death Toll From Texas Floods Reaches 59, Including 21 Children

13 hours ago

California’s Politics Drifts Right While New York’s Leans Left

14 hours ago

How Trump’s ‘Big, Beautiful Bill’ Will Make China Great Again

2 days ago

What’s Caitlin Clark Worth to the WNBA? A Lot More Than Her $78,066 Salary.

2 days ago

TikTok Building New Version of App Ahead of Expected US Sale, the Information Reports

TikTok is building a new version of its app for users in the United States ahead of a planned sale of the app to a group of investors, The I...

6 hours ago

A logo is displayed over a door at the U.S. headquarters of the social media company TikTok in Culver City, California, U.S. January 17, 2025. (Reuters File)
6 hours ago

TikTok Building New Version of App Ahead of Expected US Sale, the Information Reports

Boxes of aid are stacked as Gaza Humanitarian Foundation said it has commenced operations to begin distribution of aid, in Rafah, in the southern Gaza Strip, May 26, 2025. (Reuters File)
6 hours ago

Hamas Government Office Rejects US Accusation of Involvement in Gaza Aid Site Attack

A volunteer searches for flood victims after deadly flooding in Kerr County, Texas, U.S., July 6, 2025. REUTERS/Sergio Flores
6 hours ago

Death Toll From Texas Floods Reaches 78, Trump Plans Visit

Tesla CEO and X owner Elon Musk listens as US President-elect Donald Trump speaks during a meeting with House Republicans at the Hyatt Regency hotel in Washington, DC, U.S. on November 13, 2024. (Reuters File)
6 hours ago

Trump Calls Musk’s Formation of New Party “Ridiculous” and Confusing

A 22-year-old suspected DUI driver crashed into a parked CHP motorcycle and tow truck on Highway 99 near Fresno, narrowly missing an officer and bystanders, CHP said Saturday, July 5, 2025. (CHP)
13 hours ago

Fresno DUI Driver Slams Into CHP Motorcycle, Tow Truck on Highway 99

A service member of a drone unit of the 24th Separate Mechanized Brigade named after King Danylo of the Ukrainian Armed Forces controls a heavy combat drone while it flies over positions of Russian troops, amid Russia's attack on Ukraine, in Donetsk Region, Ukraine June 12, 2025. (Reuters File)
13 hours ago

Russia Downs 120 Ukrainian Drones Overnight, Defense Ministry Says

An Israeli tank maneuvers in Gaza, as seen from the Israeli side of the border, July 6, 2025. (Reuters/Amir Cohen)
13 hours ago

Israel Sends Delegation to Qatar for Gaza Talks Ahead of Netanyahu Trip to US

The Madre Fire near New Cuyama has burned nearly 80,000 acres as of Sunday, July 6, 2025, morning, prompting widespread evacuation orders and warnings across three counties. (CalFire)
13 hours ago

San Luis Obispo’s Madre Fire Grows to Nearly 80,000 Acres, 30% Contained

Help continue the work that gets you the news that matters most.

Search

Send this to a friend