In a Nevada Appeal opinion column published May 5, this writer explored the normative effect of taxation: how taxes influence consumer and business decisions. As examples, we looked at some state and federal taxes, and pondered how those taxes influenced California drivers and large companies like Tesla as well as small Nevada businesses hit by the new business margins tax.
Since that column saw the light of day it has come out the state of California is considering a tax on rocket launches. The amount would be based on the number of miles the rocket travels, so if it goes into orbit it could end up owing tax on millions of miles it would travel. The tax on a flight from Vandenberg Air Force Base on the California coast would be untenable. Since Space-X is returning its first stages to the launchpad after it boosts its payload to about 70 miles, one wonders if it could claim some kind of refund, like the five cents you get for an empty soda bottle.
Is it possible the state legislature hopes to discourage rocket launches in that state? That’s my conclusion, but it’s foolish — launching a rocket takes weeks and involves many people. The workers who participate can be counted on to consume goods and services for the period they’re in the state — some even live there as residents — and they pay sales and other taxes on everything they do. If the parent company moves elsewhere to avoid a large tax bite, the state loses the taxes those employees would otherwise make. It also loses the prestige of being a space base.
The bill was sponsored by Democrat Assemblyman Al Muratsuchi from Los Angeles, who apparently thinks SpaceX and other private rocket companies have deep pockets. I won’t say his premise is wrong: Elon Musk has spent millions building rockets he hopes will be launching thousands of “internet satellites” this summer. But what Assemblyman Muratsuchi might ultimately discover is Musk and other private space businesses can just as easily launch from Florida. And if the cost of launching from California is inflated by a sizable tax, he will certainly do so.
One suspects California lawmakers didn’t read my previous column and don’t understand taxes influence consumption patterns. Or else they don’t care if SpaceX and other private launch companies leave the state. That’s probably what they thought before Musk built his Tesla battery factory in Nevada.
Meanwhile, our own legislature has been focused on marijuana issues. The folks in Carson City have spent an inordinate amount of time this session working on various aspects of the move to legalize marijuana by July 1. I believe part of the reason is because they expect to see large amounts of money coming into the treasury from marijuana taxes, not entirely unlike what Assemblyman Muratsuchi is thinking about rocket launches. I believe both are wrong, and I will watch to see how tax collections go. At the very least, the rocket launch proposal doesn’t cost the state for extra administrators, unlike what we’re doing here with marijuana legalization.
The lesson we should all draw from the two examples above is that legislatures have the power of taxation, but that’s far more than just writing a law and collecting money. It also changes the way people do business, and that in turn might impact the amount of revenue the new law will generate. Tax law isn’t a simple “on-off” switch for taxpayer money to flow into the treasury. That’s a lesson elected officials need to learn.
Fred LaSor thinks lawmakers at the state and national level often misunderstand the impact of their laws.