Let’s stipulate that no one is going to confuse California’s progressive Democratic governor, Gavin Newsom, with more conservative governors like Arizona’s Doug Ducey. But even Newsom understands the danger that a dramatic income tax increase can mean for a state’s competitiveness.
In announcing his support of a ballot proposition to create a “split roll” property tax system that will treat residential and commercial properties differently for tax purposes (itself a bad idea), Newsom also said he will oppose an effort to raise the top state income tax rate and impose a wealth tax.
What’s happening in California is instructive to the debate over Arizona’s Proposition 208, which would catapult Arizona’s top income tax rate into the top-10-highest in the nation by raising it 77.7%, from the current 4.5% to 8%.
“In a global, mobile economy, now is not the time for the kind of state tax increases on income we saw proposed at the end of this legislative session and I will not sign such proposals into law,” Newsom said.
Even Newsom gets it: In the freest country on the planet, individuals and businesses of all sizes can move to more welcoming tax environments when their current jurisdiction becomes overtaxed and overregulated.
At an August press conference, Newsom was cool to higher tax proposals, saying California has to “consider the impacts of those decisions on your ability to retain and attract talent, individuals, companies, and your competitiveness. Everything needs to be considered in that light. And I would encourage those that are making proposals in this space to consider those impacts in relationship to what may or may not be happening in other parts of this nation.”
Granted, California already has the highest income tax rate in the country at 13.3% (on income over $1 million), but the principal that certain taxes are particularly damaging to economic expansion holds.
When a big income tax increase during the middle of pandemic is too extreme even for Gavin Newsom, that should tell us all we need to know about the wisdom of Proposition 208.
Glenn Hamer is president and CEO of the Arizona Chamber of Commerce and Industry.