California: The Internet Caused Our Budget Deficit

In the 1990s “dot com” boom, a lot of people sold stocks and stock options at a profit. That windfall resulted in huge capital gains taxes for the state. Anyone literate enough to read this article knows that when you receive a gift, you don’t build that revenue into your budget. It is a gift, you spend it and it is gone.

Deposed former Governor Gray Davis, instead of using that windfall to invest in California, hired a lot of state employees. California higher education, for example, as consistent a voting demographic for his party as imaginable in a democracy, tripled in size. There was little surprise to anyone outside government that when the stock boom ended and capital gains taxes dropped, California ran a deficit. But California still had a lot of extra employees. The same university system that hired and built indiscriminately now engages in political theater and cuts popular classes, insisting there is no budget for them. Californians are also sitting on a top of a $100 billion pension obligation for state employees. Unlike a real business driven by people who know what they are doing, it can’t ever be defaulted on. We’re going to pay it.

Yet it’s not the government’s fault, says the Franchise Tax Board. They’re also stuck in 1999. Back then, music companies insisted the Internet was killing their business. In 2005, the Post Office wanted to have a tax placed on email because the Internet was killing their business. Today, the California government says deadbeats not paying their taxes are the issue. And by ‘deadbeats’, they even mean people who don’t owe taxes at all, like if you buy something on the Internet from North Carolina.

Waitresses don’t declare enough, they claim, and small business owners too. Yes, they think waitresses are secretly driving Ferraris. You regular people who estimate a $50 sweater given to charity is worth $2 instead of $1 also get thrown in there – but the real focus is on taxing the Internet.

Like with the record companies and the Post Office, the Franchise Tax Board is using voodoo math to bolster its case. They assume every dollar in Internet purchases would still happen, people would just pay 9% more plus shipping, and the state deficit disappears if citizens would just engage in “full compliance”, including for paying taxes under tax laws that don’t exist. But they want them to exist and Kevin Yamamura the the Sacramento Bee is right there to help establish that false balance for them. It’s not on the front page of the Bee, where the article starts and dutifully claims people who buy things on the Internet are deadbeats, that he notes the Franchise Tax Board is making up the numbers in their claim. Then only even later does he write that the government acknowledges that not only are those numbers estimated, they factored in an even broader amount with the claim that they believe the gap is ‘significantly larger’ than even what their made up numbers show.

Instead of inventing new tax criminals to pursue, the government should do what real families and businesses must do; cut spending. Instead, it’s like that crappy, weird Ayn Rand novel that was too strange to happen is happening in the state that most hates Ayn Rand. California has already killed manufacturing and small business in California, they shouldn’t be out to kill the only sector of the economy that still functions. But they are.