State tax commission makes recommendations

September 29th, 2009, 1:27 pm · 11 Comments · posted by BRIAN JOSEPH, Sacramento Correspondent

Gov. Arnold Schwarzenegger announced this morning that he will be calling a special session of the state Legislature to review recommendations for updating the tax code, which were released today.

The Commission on the 21st Century Economy, a 14-member, bipartisan committee appointed by the governor and legislative leaders, has been working for nine months on a series of recommendations to simplify the state tax code and reduce tax revenue volatility, a prime culprit behind the state’s budget crisis this year.

The commission, led by former assistant U.S. Treasury Secretary Gerald Parsky and included Anaheim Mayor Curt Pringle, calls for reducing the personal income tax for every taxpayer in California, eliminating the state sales tax and the corporate tax and establishing a new “business net receipts tax,” which apply to all sectors of the California economy, including services.

Under the commission’s proposal, the state would reduce its tax brackets from six to two, with a lower tax rate of 2.75 percent for taxable income up to $56,000 for couples ($28,000 for single) and 6.5 percent for income above that.

Meanwhile, the corporate and sales taxes would be eliminated, which for consumers would drop 5 percent from the sales tax (local sales taxes would still be in place). Replacing those taxes would be the business net receipts tax, or BNRT as its called, which would be a tax of no more than 4 percent on the difference of a business’ gross receipts minus purchases.

The BNRT scheme, which the Associated Press says has never been tried on a wide scale in the United States, was specifically designed to include services (think legal, accounting, engineering, golf lessons…), Parsky said in an late morning press conference at the State Capitol with Gov. Schwarzenegger.

“It is more oriented around a much broader tax base, taking into account what the 21st Century economy is like in California, because the service part of our economy is not in the tax base now,” Parsky said.

Schwarzenegger said if it was solely up to him he’d sign the commission’s recommendation into law immediately. But as it is, the Legislature must approve any changes to the tax code and its widely believed in the Capitol that both Republicans and Democrats dislike the plan.

In fact, only nine of the 14 members of the commission signed off on the plan, with prominent Democrat Fred Keeley as one of the dissenters.

Republicans dislike the plan because they say it will make California’s tough business climate even tougher, while Democrats don’t believe its fair for the wealthy to be taxed at the same rate as the lower and middle class.

Republican State Sen. George Runner of Antelope Valley immediately released a statement saying that the tax commission’s proposals will “kill jobs and evaporate the entrepreneurial spirit that Californian is known for the world-over.”

Both the California Tax Reform Association, which advocates for tax relief on the part of consumers, and the California Chamber of Commerce, which represents business interests, urged caution over implementing the new plan.

Chamber President Allan Zaremberg said: “We must not rush into replacing our 70-year-old tax system with an unproven experiment that may fail to deliver the promised results.”

Association Executive Director Lenny Goldberg went even farther calling it a failure and said “it does not even address the distinct issues of the 21st century economy.”

Commission member Christopher Edley Jr., the dean of the UC Berkeley Boalt Hall School of Law, acknowledged at the press conference that the commission has received very little support for its ideas at public hearings.

“I can’t recall anybody in particular who supported the BNRT at our public hearing,” Edley said. “But I also remember distinctly feeling each person who spoke for opposing it was not fully familiar with what we were working on.”

Senate Leader Darrell Steinberg and Assembly Speaker Karen Bass have both pledged to objectively review the proposals.

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Frank Coleman says:

September 29, 2009 at 3:01 pm

I think its an innovative way to boost consumer spending and even draw in more out of state spending. Its not like businesses wouldn’t adjust their prices in the upward direction to make up for the new tax. Republicans act like businesses eat tax increases which is not true, any increase is rounded up and passed along to the consumer.

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shemp says:

September 29, 2009 at 3:11 pm

I love how they all start screaming that they don’t want a change in a “70 year old” tax structure. What we have now doesn’t work. We are bankrupt but, heaven forbid they explore something new. These bozos are the bozos that WE elect. What is wrong with us?

BK says:

September 29, 2009 at 3:40 pm

Bankrupt from years of overspending. You expect a different result when you keep electing the same fools?

reformcal.com

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gary says:

September 29, 2009 at 3:13 pm

like this will ever happen . ronald reagan started it !

NorthCounty says:

September 29, 2009 at 3:30 pm

You’re right…businesses pass the cost of doing business to the consumer. The problem is that a lot of business will not even come to California because they can just as easily operate out of the State.

BK says:

September 29, 2009 at 3:58 pm

Exactly!

California #3 Worst business friendly state
Nevada #6 Most friendly business state.

Where would you set up a business?

Post Reply

X-DEM says:

September 29, 2009 at 3:55 pm

Hope springs eternal. Maybe I won’t have to relocate to Las Vegas, Nevada to escape the California personal income tax which is much much too high for retirees. You think California would ever eliminate such taxes?

OC4truth says:

September 29, 2009 at 3:58 pm

I’m concerned that it may complicate things for those in the service area.

Also saying that they are outside the tax structure now is baloney since we all pay sales taxes and income taxes.

Would that mean that all independent contractors would be required now to calculate this tax? No thanks. Sounds like a lot of work that would squelch entrepreneurial spirit.

There’s already enough barriers for people going into business with so many hoops to jump through that can be overwhelming for people.

One thing that really could be done would be to simplify the CA income tax rules and make it more in line with Federal ones.

They have some really picky ones, like there was on for caregivers, but was so limited that it would only cover certain ones. Its like different legislators put in their pet group, but left out a lot of other equally deserving ones, or ones in that group that didn’t quite meet the definitions set up.

Big Wally says:

September 29, 2009 at 4:05 pm

Charge the new tax fee to those companies that do not collect (charge) sales tax now. Why should they be exempt.

scotty says:

September 30, 2009 at 8:15 am

A receipts-based system can be problematic. For example, some companies sell high margin items, such as food, software, etc. and others sell very low margin stuff like cars and electronics. If we were to tax based on ‘receipts’ or the selling price, there would be a significant increase in the taxes on cars, TVs, IPODS, computers. Maybe to the extent that these businesses exit the state or become less prevalent. We have seen what happens to local job markets when car dealerships get wiped out.

Then again, maybe we are becoming the state of service-only business. Travel, tourism, restaurants, etc. No sense in manufacturing here, high ticket items will be purchased out-of-state. We can all become ride operators at Knott’s or burger flippers at In-n-out.

By the way, don’t get all huffy about the wealthy earners in the state getting a big tax cut. There won’t be any income earned under this plan.

sidney anderson says:

September 30, 2009 at 6:26 pm

One thing is certain - this plan is designed to increase not decrease
taxes.
Any VAT or variation of it will be a hidden tax and thus subject to
increases without public outcry.
What can be done? Sacramento is going to produce a gimmick,
nothing else. What we need is another Proposition 13 type tax
rebellion, but is there anyone around, like a Howard Jarvis, to lead
it.

Orange County Register