Another Bad Idea: A Local Income Tax

By Joel Fox.

Members of the Los Angeles County Board of Supervisors have suggested an income tax on millionaires dedicating the money for homelessness relief. Opening the door for local governments to impose income taxes would erode the state’s major fund raising mechanism, burden taxpayers with more paperwork, hit small businesses whose owners pay business taxes through personal income taxes, and subject more government revenue to a highly volatile revenue source. All in all a bad idea.

Last week, when Gov. Jerry Brown vetoed the bill that would have permitted local governments to levy cigarette taxes, he complained that there already are too many taxes on the coming ballot. A push for an income tax would increase the volume of tax measures facing voters.

Yesterday, the L.A. Board of Supervisors put off for one week a motion to ask county lobbyists to try and convince legislators to change the law that prohibits local jurisdictions from imposing an income tax.

Still, Pandora’s Box on local income taxes has been cracked open. If the movement persists the consequences can be great.

The proposal to levy local income taxes comes at a time that a statewide effort to extend the Proposition 30 state income tax levies is on-going. California’s top income taxpayers already pay the highest income tax rate in the country.

L.A. County wants to pile on.

The L.A. County supervisors think they have a winning proposal. The press release announcing the effort said a poll showed 76% support. Advocates of the idea will point to 14 states that give permission for some local governments to raise income taxes. Of course, it’s always easy for those polled to say they are willing to raise taxes on someone else.

But what happens when there is an economic downturn? I dealt with that concern for the state last week considering the possibility of a Shakespearean Tragedy for the State Budget.  Looks like the locals want to stage a similar play.

When I write locals, I mean more than Los Angeles. If the legislature decides to change the restrictions on local governments imposing an income tax, does anyone think other jurisdictions will sit ideally by? Los Angeles County supervisors say they want the money to help the homeless. There are a lot of other interests in communities around the state that consider the causes they believe in worthy of more economic help.

But, what about the taxpayers?

How long before local taxpayers who continue to get hit with increased tax rates throw up their hands and give up on Los Angeles and California? The burden continues to grow. Proposition 30 was sold as a temporary tax for seven years. Perhaps many high-end income taxpayers said they would weather the storm. However, those taxpayers are now looking at an additional twelve years of the highest income tax rate in the country BEFORE local governments jump on that gravy train.

In the Los Angeles County Business Federation (BizFed) poll of members issued last week, the number one concern for small business owners was the income tax.

Before anyone thinks the push for new taxes is only about the rich consider what likely might occur if government budgets relying on increased income tax revenue are hard hit during a recession or economic slowdown.

I remember reading about the Midwest congressman who announced on the floor of the House of Representatives in the early years of the 20th Century that he was voting for the amendment to the United States Constitution that would establish an income tax because his constituents wouldn’t pay the new tax. It was aimed at the rich.

The income tax eventually came after his constituents, too.

Originally posted at Fox & Hounds Daily.

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