Raising sales tax isn’t the answer. There is a better way.

How do we increase or even maintain local services like police, fire, parks, afterschool programs, and road repairs in our local cities? In a recent study conducted by the city of Garden Grove in Orange County, California, residents surveyed, overwhelmingly supported raising the sale tax by 1-cent in order to raise an estimated $19 million a year to help fund these and other services.

I’m perfectly fine when residents decide to raise taxes on themselves. There are many valid reasons to do that if it is necessary. I believe in this case it is not necessary because we have a better way.

Before we do that you should know how local municipalities generate revenue locally; one of the most significant sources of revenue for cities is through sales tax. The base sales tax rate is 7.25% in California. From that 7.25%, 1% goes to your city, and 6.25% goes to the state general fund and other earmarked funds. Since local municipalities are so depended upon sales tax revenue to maintain local services, it is common for cities and counties to add additional sales tax to fund local services. The highest sales tax rate currently in California is at 10.25% (see where your city stands).

Here’s the problem

As stated in the Orange County Tribune, “Recent moves by state public employment retirement system [CalPERS] officials have pushed many cities into a deficit-spending situation as the cost of paying pensions for city employees rise sharply.”

With state officials playing politics with retirement funds and making poor investments, as well as, providing unsustainable benefit packages, a massive pension crisis will be inevitable. Thus, causing greater deficit spending and, in most likelihood, if this tax hike is approved by voters, it will most likely be diverted to pay for unsustainable pensions instead of the services promised by this tax increase. (If you would like to read more on CalPERS and my take on the problem and my solution check out my recent article on CalPERS).

The other problem is sales tax revenue has been decreasing because of the boom of online retailers like Amazon. With cities losing millions of dollars annually the introduction of taxes on services (i.e. labor) instead of just sales tax is seen as inevitable. At a recent Orange County Taxpayers Association meeting, guest speakers, Chairman of the Revenue and Taxation Committee, Assembly Member Sebastian Ridley-Thomas (D-54th District) and Vice-Chair Assembly Member William P. Brough (R-73rd District) suggested this would most likely be inevitable if something didn’t change.

You see with local government so dependant on sales tax revenue it is to the benefit of these municipalities to try and maximize sale tax revenue. You can only have so many car dealerships and high ticket sales tax items in a city and thus cities focus on creating low-paying retail jobs in order to generate revenue. So, unfortunately, your city will make more money by creating minimum waged retail jobs instead of high waged service jobs.

The better way

The problem is that the deck is stacked against your city. They are hampered by a tax structured that worked in the 20th-century but fails to adapt to the realities of the 21st-century economy. We need a new tax structure, we need a better way, and that way is what I call Trickle-up-Taxation (Read about it here).

Trickle-up-taxation is the better way because it will give cities like Garden Grove millions of dollars more annually without raising taxes and eliminates any need for taxing services.

The basic premise is this, state taxes are eliminated and we implement county and city taxes. No more state income tax or sales tax. All these taxes will stay locally. The state will relinquish certain responsibilities to your county and city government and the state will retain functions which only the state can manage. The state will be funded by these local municipalities by taking a portion of all tax dollars generated locally. This will lower taxes, eliminate excess government waste, and increase services.

There is a better way and that is why I’m running for State Controller in California. As a fiscal conservative, my issue isn’t when voters decide to increase taxes on themselves or have more service and welfare programs. Our local governments should meet the demands and needs of its residents. My problem is that we think the only solution is to raise taxes instead of finding new innovative ways to maximize our services while keeping our tax rates as low as possible. Fiscal responsibility isn’t about a barebones government. It’s about using your tax dollars as wisely as possible in order to provide you with the services you need and want, while at the same time, working diligently to not overtax you and allow you to keep as much of your hard earned money for you and your family.

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