THE POIZNER JOBS PLAN: MAKING CALIFORNIA THE NATION’S LEADER IN JOB CREATION AND ECONOMIC GROWTH
Today, In Los Angeles, Commissioner Steve Poizner Announced A Plan To Create Jobs And Revitalize California’s Economy, Centered On AcrossTheBoard Tax Cuts And Broad Regulatory Reforms. Commissioner Poizner’s jobs plan is a comprehensive vision for restoring California as a national and global leader in economic growth, competitiveness, and innovation. Commissioner Poizner’s plan calls for pro‐growth tax cuts to fuel job creation and jumpstart the economy, regulatory and legal reforms that make California competitive in the national and global economy, and a more innovative and responsive state government that unleashes California’s entrepreneurial spirit. Commissioner Poizner’s Jobs Plan Will Jumpstart California’s Struggling Economy. Faced with taxes that penalize hard work and investment, a legal system hostile to job creation, workplace rules out of alignment with national standards, and a maze of arcane permitting and licensing requirements, people and jobs continue to flee the state. California’s unemployment rate is one of the highest in the nation.1 Between 2004 and 2008, more than one million residents of the Golden State made the decision to pack up and move to a different state.2 Commissioner Poizner’s plan directly addresses basic flaws in California’s economy and makes the real changes proven to create jobs and bring people back to California: lower taxes and streamlined government. Commissioner Poizner’s Jobs Plan Will Make The Permanent Reforms Needed To Grow California’s Economy. Revitalization will not come from a one‐time stimulus or any other quick‐fix spending binge. Rather than foisting debt on future generations, Commissioner Poizner will make permanent reforms that lay the groundwork for real, sustained economic growth. By cutting taxes for all Californians, streamlining necessary government functions, and tapping into California’s entrepreneurial spirit, Commissioner Poizner’s plan will make California the best place to live and work for generations to come. The Poizner Jobs Plan: An Overview Commissioner Poizner Outlined A Jobs Plan With Four Major Components: Tax Cuts For Every Taxpayer And Every Business In California To Jumpstart The Economy. Commissioner Poizner knows that high taxes stifle job creation, while low taxes fuel job creation. With a tax burden and unemployment rate both above the 1 The U.S. Bureau of Labor Statistics reported that California’s unemployment rate was 11.9% in July 2009, which was tied
for fourth highest in the nation. 2 Robert Murphy and Jason Clemens, “Assessing the State of the Golden State,” Pacific Research Institute, 2009.
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national average, California needs tax relief more than ever. Commissioner Poizner will bring this essential relief in the form of substantial cuts in every major category of taxes. Regulatory And Workplace Reform To Make California Competitive Again. Even before the recent economic crisis, people and jobs were leaving the state because complex, idiosyncratic, anti‐growth policies smothered employers’ attempts to create jobs. Commissioner Poizner’s plan includes simple, streamlined, pro‐growth regulatory and workplace reforms to help businesses create the jobs Californians need. Common Sense Tort Reform For An Economy Focused On Growth And Expansion. Runaway jury verdicts and the specter of “jackpot justice” have driven jobs and employers out of California. Commissioner Poizner will reform our state’s legal system to ensure that it provides just compensation while deterring profit‐driven litigation. A More Innovative State Government To Unleash California’s Entrepreneurial Spirit And Sustain Job Growth. In the years and decades to come, California will need a unique competitive edge to secure its place as the national leader in job creation. Commissioner Poizner is committed to streamlining and modernizing state government and creating online‐based resources to help entrepreneurs and innovators who want to start or grow their businesses in California. I.
Tax Cuts For Every Taxpayer And Every Business In California To Jumpstart The Economy
Commissioner Poizner Will Cut Rates In Every Major Category Of Taxation. Drawing on the time‐tested principle that tax cuts fuel economic growth and job creation, Commissioner Poizner’s plan includes the following across‐the‐board tax cuts: a 10% reduction in personal income tax rates, a 10% reduction in the state sales tax rate, a 10% reduction in the corporation tax rate, and a 50% reduction in capital gains tax rates. Commissioner Poizner’s Tax Plan Does Not Pick Winners And Losers. Across‐the‐ board cuts ensure that every Californian and every business receives needed tax relief. Commissioner Poizner’s Tax Plan Is A Straightforward Recipe For Growth. Unlike narrow credits or exemptions that apply only to a few taxpayers or in a few industries, these are real cuts that apply to any taxpayer or business, and do not increase the complexity of the tax system. The Personal Income Tax Cut Means More Money For Job Creation. By reducing tax rates in every bracket by 10%, Commissioner Poizner’s across‐the‐board cut brings relief to every California taxpayer. These reductions will come on top of the expiration of the temporary .25% increase imposed by the legislature as part of the 2009‐2010 budget. The 2
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cut will put more money in the hands of hard‐working Californians and fuel the economy through spending and investment. Because the majority of small businesses also file under the personal income tax system,3 Commissioner Poizner’s cut will support entrepreneurship and innovation, encouraging the growth and expansion of new businesses. By giving Californians more control over their earnings, an across‐the‐board cut in personal income tax rates will make California a better place to work, earn, and raise a family. Table 1: The Poizner Tax Cuts Will Reduce Every Marginal Rate Of Personal Income Tax Single/Married Filing Separately
Married Filing Jointly
Current Rates4
Rates Under Poizner Plan5
$0 to $7,060 $7,060 to $16,739 $16,739 to $26,419 $26,419 to $36,675 $36,675 to $46,349 $47,055 and Over
$0 to $14,120 $14,120 to $33,478 $33,478 to $52,838 $52,838 to $73,350 $73,350 to $92,698 $92,698 and Over
1.25% 2.25% 4.25% 6.25% 8.25% 9.55%
0.90% 1.80% 3.60% 5.40% 7.20% 8.37%
The Sales Tax Cut Will Bring Immediate Relief To Every Californian. In the middle of an economic crisis, as Californians took home less pay or lost their jobs altogether, legislators decided to make consumer goods more expensive by increasing the state sales tax for two years. Californians now pay the highest sales tax in the nation. Commissioner Poizner will allow the punitive increases to expire, and cut the state sales tax by an additional 10%.6 This will improve consumer purchasing power, encourage individuals to invest in California’s economy again, and play an important role in fueling our state’s economic recovery. The Corporation Tax Cut Will Help California Compete For New Jobs. With a business tax climate ranked 48th in the nation,7 California is not on even ground when it competes for new jobs. Moreover, a recent study found that states with high corporation taxes have likely depressed workers’ wages over time, bolstering the conclusion that the burden of high business taxes ultimately falls on labor.8 Commissioner Poizner will cut the state 3 The Franchise Tax Board reports that in 2006, California had over 2.5 million sole proprietorships, which pay income tax
through the personal income tax system. The same year, fewer than 700,000 Corporation tax returns were filed in California. 4 Current rates reflect the temporary .25% increase set to expire in December 31, 2010. Commissioner Poizner’s 10% across‐the‐board reductions will be based on the marginal rates effective after expiration of the increase. 5 The 1% mental health services tax levied on incomes in excess of $1 million generates special fund revenues and therefore will not be affected by Commissioner Poizner’s rate cuts. 6 The state component of the sales tax is currently 8.25%. Overall, therefore, the state sales tax under Commissioner Poizner’s plan (and pending expiry of the temporary two‐year increase in the sales tax approved by the legislature in February 2009) will be 6.53%. 7 The Tax Foundation Website, www.taxfoundation.org, Accessed 9/10/09. 8 Robert Carroll, “The Corporate Income Tax and Workers’ Wages: New Evidence From the Fifty States,” The Tax Foundation, Special Report No. 169, 2009.
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corporation tax rate by 10%, ensuring that every business—large or small—gets the benefit of much‐needed tax relief.9 Moreover, a cut in the corporation tax rate will send the message that California is once again the best place to locate a workforce and create new jobs. The Capital Gains Tax Cut Will Fuel Investment And Grow Our Economy. Over three million Californians realized capital gains in 2007.10 However, California does not currently have a preferential tax rate for capital gains. In other words, all such gains are taxed at an individual’s marginal income tax rate.11 These high capital gains tax rates have inhibited investment in California’s economy and stunted our state’s economic growth, particularly during the current economic crisis. Millions of Californians will benefit from Commissioner Poizner’s proposal to cut capital gains tax rates in half. This tax cut will encourage entrepreneurship, create jobs, and grow our economy. Also, because the capital gains tax is a key factor in the volatility of state revenues, reducing dependence on this tax will likely help stabilize California’s fiscal condition.12 Background: Why Californians Need Tax Relief Now Californians Currently Pay Some Of The Highest Taxes In America. California’s tax system consistently ranks among the worst in the nation. In 2008, each Californian paid an average of $5,028 in state and local taxes, which was more than the national average of $4,283, and more than in any other neighboring state, as Figure 1 demonstrates.13
Figure 1: California Taxes: The Worst In The West State and Local Tax Burden Per Capita, 2008
$5,000 $4,500 $4,000 $3,500 $3,000 CA WA
OR
Tax Burden Per Capita
$5,500
$2,500 NV
AZ
Source: The Tax Foundation
9 This proposal will reduce the state corporation tax rate from 8.84% to 7.96%, and the corporation tax assessed on banks and financial institutions from 10.84% to 9.76%. 10 “Revenue Estimating Exhibit – June 2009,” Franchise Tax Board, 2009. 11 “Instructions for Schedule CA (540),” Franchise Tax Board, 2008. 12 “Revenue Volatility In California,” Legislative Analyst’s Office, 2005. 13 “United States State‐Local Tax Burdens, 1977‐2008,” The Tax Foundation, 2009.
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Figure 2 shows that in the same year, California collected $117.4 billion in taxes from its people, while Texas collected less than half that amount.14 Today, Californians pay the highest sales tax in America.15 Our top personal income tax rate is the fourth highest in the country, and the corporation tax rate is the highest in the West.16 California’s overall business tax climate ranks 48th, meaning that only two states had tax systems worse for economic development.17
Figure 2: California Leads the Nation in Tax Collections Ten Largest State Government Tax Collections, 2008 State Government Tax Collections (billions)
$120
$100
$80
$60
$40
$20
$0 MA NC
MI
OH NJ IL
PA FL
TX
NY
CA
Source: U.S. Census Bureau
Tax Cuts Fuel Economic Growth And Job Creation. Because taxes reduce the rewards for working and investing, high taxes deter productive activities and stifle economic growth. In a federal system, workers and businesses flee those states with the most burdensome tax systems. As a high‐tax state, California faces unemployment rates above the national average, and net domestic out‐migration as Californians move to other states. 14 “State Government Tax Collections: 2008,” U.S. Census Bureau, 2009.
15 The Tax Foundation Website, www.taxfoundation.org, Accessed 9/10/09. 16 Id. 17 Id.
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Figure 3 shows that historically, California has lost people to other states when tax rates were high.
Figure 3: Californians Flee High Tax Rates Personal Income Tax Compared To Net Domestic Migration Rates 11.00%
1.00%
People flee high taxes. . .
10.60%
0.50%
10.40% 10.20%
0.00%
10.00% 9.80%
‐0.50%
. . . and return when rates fall.
9.60% 9.40%
Net Domestic Migration Rate
Top Personal Income Tax Rate
10.80%
‐1.00%
9.20% 9.00% 2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
‐1.50%
Sources: Franchise Tax Board, Department of Finance, Public Policy Institute of California
Tax cuts will restore the incentives to work, earn, and invest in California. When taxes are lower, the economy grows at a faster rate. Combined with regulatory and legal reforms to streamline government, tax cuts that restore economic incentives will be particularly effective in California. This is because the Golden State’s abundant resources, diverse, educated workforce, and history of innovation mean that we can restart economic growth more quickly here than anywhere else in the world. Economic growth means increased employment, higher wages, and a more prosperous future. Tax Cuts Will Help Stabilize California’s Fiscal Condition. History demonstrates that tax cuts lead to significant job creation and economic growth. In fact, over time, higher tax revenues may offset a substantial portion of the cost of a tax cut. Two examples in American history illustrate these axioms.
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When John F. Kennedy became President, Americans faced a crushing federal income tax burden. President Kennedy argued that across‐the‐board tax rate reductions were the best way to jumpstart the American economy, and the cuts he proposed were signed into law after his death. Surging economic growth followed, and federal income tax revenues rose, as shown in Figure 4.
95% 90% 85%
$200 $180
Top Tax Rate
$160 $140
80%
$120
75%
$100
70%
$80
65%
$60
60%
Tax Receipts
55% 50% 1960
1961
1962
1963
1964
1965
1966
1967
1968
$40 $20 $0
Federal Income Tax Receipts (billions)
Top Income Tax Rate
Figure 4: JFK Tax Cuts Fuel Growth in Tax Revenue
1969
Sources: Pacific Research Institute, The Tax Foundation, U.S. Census Bureau
Seventeen years later, President Reagan followed JFK’s example, and cut taxes to stimulate the economy and fight unemployment. Again, tax cuts spurred a boom in economic prosperity, and tax revenues increased with the growth shown in Figure 5.
70%
$1,200
Top Tax Rate
$1,000
60%
$800
50%
$600
40%
$400
Tax Receipts
30% 20% 1980
1981
1982
1983
1984
1985
1986
$200 $0 1987
1988
1989
Federal Income Tax Receipts (billions)
Top Income Tax Rate
Figure 5: Reagan Tax Cuts Fuel Growth in Tax Revenue 80%
Sources: Pacific Research Institute, The Tax Foundation, U.S. Census Bureau
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Regulatory And Workplace Reform To Make California Competitive Again
Commissioner Poizner Will Streamline The Permitting And Environmental Dispute Resolution Process. In California, job‐creating projects such as new manufacturing plants must navigate a labyrinth of government agencies and requirements, including stringent environmental review. Figure 6 depicts a portion of this process.
Figure 6: Who Stands in the Way of New Jobs? Permitting a Circuit Board Factory in California
Governor
Legislature
OAL
OPR Cal/EPA
DTSC
AB 32
BOE
FTB BED
GIS
SWRCB
ARB
Pressure Vessel Unit
RWRCB
Council
Mayor
DIR
CNRA
Sup. Court
Water District
Air Quality Dist.
Assessor Police
Finance & License
Determination of CEQA Requirements Lead Agency
Clerk
Activists
App. Court
Draft EIR Public Notice & Comment
NIMBY
New Jobs New Jobs
Trial Court
Land Use
Bldng
ADR
Respond to Draft EIR
Required Consultation
EIR Decision
Planning
Required Consultations
Notice Initial Study
EHD Hazmat
Responsible Agencies
CEQA Identify Lead Agency
Business Portal
Emp. Tax
Fire Dept
Entrepreneur Entrepreneur
Required Consultations
SOS
Workers Comp
Board of Supervisors Planning
EDD
DOC
Labor Standards Enf.
OSHA
SUT Div.
Porter Cologne
Caltrans
Respond to Final EIR Public Comment ND Decision
Big Labor
Feasibility Findings
Final EIR Feasibility Findings
LITIGATION
Lawyers
Even after regulatory agencies issue approval for a job‐creating project, entrepreneurs and job‐creators may find themselves mired in years of litigation if other parties appeal the permitting decision. Currently, these appeals are directed to the ordinary state court system, to be resolved by generalist judges alongside criminal cases, family matters, and commercial litigation. While in some cases litigation is necessary to resolve genuine disputes, these legal battles can add years to the project timeline, forcing Californians to go without new jobs. Commissioner Poizner will direct project litigation out of the ordinary court system and into a self‐funded dispute resolution system. The new dispute resolution system will be housed in the judiciary, meaning that its decisions will have the same binding authority as decisions of the California courts. This will eliminate delays, establish a clear line of precedents, and ensure that nearly all permitting and environmental disputes are resolved within one year of the filing of a suit.
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Commissioner Poizner Will Reform Workplace Rules To Empower Employees To Negotiate For Schedules That Work For Them. As one of only four states that do not align with the federal Fair Labor Standards Act (“FLSA”) rules, California prevents employees from entering into alternative or flexible scheduling arrangements with their employers, such as a “4/10” workweek. Antiquated labor rules that make it difficult to implement alternative schedules penalize workers who have family or other weekday obligations. Commissioner Poizner supports aligning state labor laws with FLSA so that employees will not be inhibited from entering into the alternative scheduling arrangements that suit them best. III. Common Sense Tort Reform For An Economy Focused On Job Growth And Expansion Commissioner Poizner Will Help Employers Focus On Creating Jobs, Not Defending Lawsuits. Economic growth depends on a legal system that properly and efficiently compensates the injured and protects the blameless. A poor tort system, however, encourages profit‐driven litigation and leads to lower wages, less productivity, and lost jobs. Today, too many California employers spend their time and money fighting frivolous lawsuits rather than creating jobs. California’s legal system recently ranked 44th in a study of state tort liability systems, with 50 being the worst.18 Figure 7 shows that tort losses in California were $19.9 billion in 2006, more than in any other state in the country.19
Figure 7: California Leads the Nation in Tort Losses
Tort Losses (billions)
Monetary Tort Losses, 2006 $20.0 $15.0 $10.0 $5.0 $0.0 OH Source: Pacific Research Institute
GA
MI
PA
NJ
IL
TX
FL
NY
CA
In one category, however, California’s liability system is a model for the nation. For more than thirty years, the California Medical Injury Compensation Reform Act of 1975 (“MICRA”) has reduced medical costs and deterred profit‐driven litigation while still ensuring full recovery and compensation for injured parties. As shown by Figure 8, this landmark reform has saved billions in medical malpractice insurance premiums.
18 Institute for Legal Reform Website, www.instituteforlegalreform.com, Accessed 9/9/09. 19 Lawrence J. McQuillan and Hovannes Abramyan, “U.S. Tort Liability Index, 2008 Report,” Pacific Research Institute,
2008.
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Figure 8: MICRA Has Saved California Billions Growth in Med‐Mal Liability Insurance Premiums, 1976 to 2000 $7 Premiums rose 505% in other states. . .
Premiums (bilions)
$6 $5 $4
. . . and just 167% in California.
$3 $2
Other States
California
$1
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
$0
Source: Physician Insurers Association of America
Commissioner Poizner will extend these successful reforms to other categories of personal injury cases by placing a $250,000 cap on non‐economic damages. By reducing the costs of non‐economic damages—about 24% of all tort‐related costs20—the cap will free up money for job creation and innovation.21 IV. A More Innovative State Government To Unleash California’s Entrepreneurial Spirit And Sustain Job Growth Commissioner Poizner Will Build A OneStopShop For Small Business Permitting And Licensing. California is home to millions of entrepreneurs and countless others who dream of starting their own businesses, but the state does not make it easy for them. Even the most common small businesses can require dozens of approvals or other government actions. For example, as Figure 9 demonstrates, an entrepreneur seeking to start an auto body shop in Sacramento must get multiple business licenses and environmental permits, register with several agencies, and comply with over a dozen other requirements. By the time the shop opens, the proprietor will have dealt with twenty or more different government offices at the state, local, and regional level. Commissioner Poizner envisions a California with modern, innovative, responsive state government, one where entrepreneurs can devote their energies to creating new products and services, not navigating government bureaucracy.
20 Lawrence J. McQuillan, Hovannes Abramyan, and Anthony P. Archie, “Jackpot Justice: The True Cost of America’s Tort System,” Pacific Research Institute, 2007. 21 McQuillan, supra, notes that excessive tort costs can lead to job displacement, as well as reduced research and development expenditures.
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Figure 9: New Small Businesses Face Permitting Overload Number of Approvals, Permits, and Contacts
Number of Required Approvals, Permits, and Other Government Contacts 25 20 15
City County
10
Regional 5
State
0 Pet Store in Los Computer Accountant in Auto Body Shop Angeles Programming in San Diego in Sacramento San Francisco
Restaurant in Fresno
Source: CalGold.Ca.Gov
Commissioner Poizner’s Startup.Ca.Gov is a virtual one‐stop‐shop that allows California entrepreneurs to obtain the necessary licenses and permits for most types of businesses. The site will guide users through entity formation, registration for tax purposes, permitting, and licensing. Users will receive application fee rebates if they are not assisted in a timely manner, and 24‐hour live chat and telephone support will be available to all users. Startup.Ca.Gov will be supplemented with a suite of other internet tools to promote entrepreneurship and job growth. Rate‐My‐Regulator.Ca.Gov, for example, will give Californians a public‐process report card system where they may rate their interactions with government officials. Commissioner Poizner Will Appoint A Chief Innovation Officer To Promote Entrepreneurship In California. To ensure that government is an ally rather than an obstacle, Commissioner Poizner will appoint a Chief Innovation Officer for the state. The Chief Innovation Officer will be an entrepreneur who has, like Commissioner Poizner, created jobs in California by building a company from the ground up. The Chief Innovation Officer will report directly to and advise the Governor on strategies for streamlining state government, including modernization of the tax and regulatory bureaucracies. The Chief Innovation Officer will also prepare an annual Innovation and Competitiveness Index detailing job growth, business startups, and other measures of progress. The Index will be used to demonstrate the power of pro‐growth policies and 11
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streamlined government, and to show the nation that California is once again the leader in innovation, economic growth, and job creation.
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