Please ensure Javascript is enabled for purposes of website accessibility

Trump Sues Wall Street Journal Over Epstein Report, Seeks $10 Billion

2 days ago

Clovis Unified Mourns Passing of Former Superintendent Terry Bradley

2 days ago

Clovis At-Risk Missing Person Found Dead in Fresno Canal

2 days ago

DOJ Asks California Sheriffs for Names of Inmates Who Aren’t Citizens

2 days ago

Israel Agrees to Allow Syrian Troops Limited Access to Sweida

2 days ago

Border Patrol Agents Raid a Home Depot in Northern California

2 days ago

Man Admits to Killing Missing Bass Lake Resident, Madera County Authorities Say

3 days ago

Trump Diagnosed With Vein Condition Causing Leg Swelling, White House Says

3 days ago

US Seeks One-Day Sentence for Police Officer Convicted in Breonna Taylor Case

3 days ago

Manhattan Prosecutor Who Handled Epstein Cases Is Fired

3 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

Fresno County Authorities Investigating Deadly Assault in Kingsburg

DON'T MISS

Peach the Prancing Pup Could Be Fresno’s Next Ninja Warrior

DON'T MISS

At Least 32 Killed by Israeli Fire While Seeking Aid in Gaza, Hospital Says

DON'T MISS

At Least 30 Injured When Car Hits Crowd Outside Los Angeles Club, Fire Department Says

DON'T MISS

Merced Man Drowns While Kayak Fishing at Courtright Reservoir

DON'T MISS

Syrian Forces Struggle to Implement Ceasefire in Druze Region

DON'T MISS

California Medical School Welcomes Record Class of Fresno State Graduates

DON'T MISS

New CA Budget Papers Over $20 Billion Deficit, Ignores Day of Reckoning

DON'T MISS

Astronomer CEO, HR Chief on Leave After Coldplay ‘Kiss Cam’ Sparks Scandal

DON'T MISS

Sanger Man Arrested in Child Exploitation Investigation

UP NEXT

Trump Is Winning the Race to the Bottom

UP NEXT

Why California Ag Is at Odds Over Converting Land to Solar Farms

UP NEXT

Federal Immigration Crackdown Threatens California’s Historic Housing Reforms

UP NEXT

Governors Should Be the Face of the Democratic Party

UP NEXT

MAGA Is Tearing Itself Apart Over Jeffrey Epstein

UP NEXT

Valadao, Other California GOP Members of Congress Might Regret Backing Trump’s Megabill

UP NEXT

Diplomacy or Submission? The Zionist Grip on US Political Power and Trump’s Uneasy Alliance With Netanyahu

UP NEXT

Why Measure C Is Not Measured

UP NEXT

Nathan Magsig: Why Our Second Amendment Resolution Matters to the People of the Central Valley

UP NEXT

Lawrence Summers: This Law Made Me Ashamed of My Country

Israeli Fire Kills 67 People Seeking Aid in Gaza, Medics Say, as Hunger Worsens

1 hour ago

Fresno’s Measure C Panel Prioritizes Roads After Ousting City Rep for Criticism

5 hours ago

California Is Finally Adopting Phonics, Fulfilling a Grandmother’s Dream

6 hours ago

Fresno County Authorities Investigating Deadly Assault in Kingsburg

19 hours ago

Peach the Prancing Pup Could Be Fresno’s Next Ninja Warrior

1 day ago

At Least 32 Killed by Israeli Fire While Seeking Aid in Gaza, Hospital Says

1 day ago

At Least 30 Injured When Car Hits Crowd Outside Los Angeles Club, Fire Department Says

1 day ago

Merced Man Drowns While Kayak Fishing at Courtright Reservoir

1 day ago

Syrian Forces Struggle to Implement Ceasefire in Druze Region

1 day ago

California Medical School Welcomes Record Class of Fresno State Graduates

1 day ago

Trump Says He Will Help Afghans Stuck in the UAE

WASHINGTON – President Donald Trump said on Sunday he would help Afghans detained in the United Arab Emirates for years after fleeing ...

54 minutes ago

President Donald Trump speaks at a dinner with Republican Senators, in the State Dining Room at the White House in Washington, D.C., U.S., July 18, 2025. (Reuters File)
54 minutes ago

Trump Says He Will Help Afghans Stuck in the UAE

Pope Leo XIV leads the Angelus prayer in Castel Gandolfo, Italy, July 20, 2025. REUTERS/Yara Nardi TPX IMAGES OF THE DAY
57 minutes ago

Pope Leo Calls for End to ‘Barbarity of War’ After Strike on Gaza Church

American lawyer Alan Dershowitz returns to the courtroom for the criminal trial of former U.S. President Donald Trump after a short break at Manhattan Criminal Court in New York City, U.S., 20 May 2024. (Reuters File)
59 minutes ago

Ex-Epstein Lawyer Calls for Release of Additional Epstein Materials

Palestinians gather as they carry aid supplies that entered Gaza through Israel, amid a hunger crisis, in Beit Lahia in the northern Gaza Strip July 20, 2025. REUTERS/Dawoud Abu Alkas
1 hour ago

Israeli Fire Kills 67 People Seeking Aid in Gaza, Medics Say, as Hunger Worsens

Sign Promoting Completion of Measure C Project at McKinley and Clovis Avenues near the Airport
5 hours ago

Fresno’s Measure C Panel Prioritizes Roads After Ousting City Rep for Criticism

Oakland Students Learning to Read
6 hours ago

California Is Finally Adopting Phonics, Fulfilling a Grandmother’s Dream

19 hours ago

Fresno County Authorities Investigating Deadly Assault in Kingsburg

Peach, a 2-year-old chihuahua in Fresno, is capturing hearts with her sweet personality, love for play, and unexpected fence-climbing talents that hint at a future in canine stardom. (Mell's Mutts)
1 day ago

Peach the Prancing Pup Could Be Fresno’s Next Ninja Warrior

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

Search

Send this to a friend