The Commission on the 21st Century Economy, tasked with crafting proposals to modernize California’s tax policy and ease the volatility of its revenues, released its final report today. Leona Helmsley would be proud.
Helmsley – a billionaire New York City hotel operator and real estate developer sentenced to prison for tax evasion – famously said, “Only the little people pay taxes.” With all the tax cuts being proposed by the Commission for big business and the wealthy, her observation will be true in California.
If adopted, the report’s recommendations – available here – would dramatically reshape tax policy in California and place the burden squarely on our already over-burdened, underpaid, and under-employed working families. These recommendations include:
• Reducing the number of tax brackets from six to two. The new tax rate would be 2.75 percent for taxable income up to $56,000 for joint filers ($28,000 for single) and 6.5 percent for taxable income above that amount;
• Eliminating the 8.84 percent corporate tax and the $800 minimum franchise tax;
• Eliminating the current 5 percent state sales tax, with the exception of the sales tax on gas and diesel fuels which would continue to be dedicated to transportation;
• Establishing a new tax, not to exceed 4 percent, applied to the net receipts of businesses. Small businesses with less than $500,000 in gross annual receipts would be exempt from this tax;
• Creating an independent tax dispute forum – This forum would provide taxpayers with a forum for resolving disputes with the state; and
• Increasing the state’s Rainy Day Reserve Fund from 5 percent of revenues to 12.5 percent and restricting the government's ability to use the reserves.
By flattening our tax policy, these recommendations coddle CEOs and billionaires while kicking California families to the curb. No wonder the Commission shut the public out of the process to complete its work in secret.
It is equally important to note what is not recommended by the report, but would have contributed to increasing and stabilizing the state’s tax base: a new carbon tax, an oil severance tax, extending the sales tax to certain services, and requiring corporate-owned real estate to be reassessed at market value on a regular basis.
California families are struggling to make ends meet. This recession has produced record unemployment, fueled massive wage reductions, and resulted in huge sales declines. Increasing the tax burden on hard-working families cannot fairly and reliably fill the huge revenue gap created by reducing income taxes on the wealthy and eliminating corporate taxes.
Tax reform decisions are too important for experimental guesswork. But this is exactly what the Commission’s report is urging. While the Commission asserts that its proposals will create a tax structure that will more reliably support state services, that assertion is unsupported by the available evidence. In fact, the Commission has thus far refused to make available to the public studies and information that form the basis of its proposals. Adopting the Commission’s proposals would be playing Russian roulette with California’s future.