Republican gubernatorial candidate Meg Whitman wants to eliminate California's tax on capital gains. GOP primary rival Steve Poizner wants to cut it in half.
Both believe such tax cuts would spur investment in California and lead to more tax revenues in other forms, relying on supply-side economic principles.
"Steve Poizner believes that California's high capital gains tax rates stifle job creation and discourage investment in our economy," said Lanhee Chen, Poizner's policy director. "A 50 percent cut in capital gains tax rates will make California a more attractive place to earn and invest or to start a new business."
But some tax experts say such proposals serve largely to reduce taxes for the state's wealthiest individuals — including Whitman and Poizner — who generate a greater share of their income from stocks, mutual funds and private equity investments. They warn that a capital gains tax cut would worsen the budget deficit outlook. Democrat Jerry Brown opposes the GOP candidates' positions.
In the last decade, capital gains taxes generated anywhere from $3.2 billion to $11.7 billion in annual state revenues. California is facing an estimated $18.6 billion deficit through June 2011 and is expected to encounter a similar budget gap when the next governor takes office.
Alan Auerbach, an economist at the University of California, Berkeley, said past evidence suggests a capital gains tax cut would not lead to growth in overall tax revenues.
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