The Commission on the Twenty First Century Economy unveiled their 19th century proposals today in a final report supported by only 9 of the 14 committee members (state tax expert Richard Pomp and current Santa Cruz County treasurer Fred Keeley were not among them).
As expected, the proposals are a radical right-wing attack on the progressive elements of our tax system, as Eric Bailey at the LA Times explains:
Under the proposal, the income tax would be flattened from the current half-dozen rates to just two – a 2.75% levy on income up to $56,000 for a married couple, and 6.5% for taxable income exceeding that threshold. Critics have attacked the proposal as a giveaway to the rich, with millionaires on average paying $109,000 less.
To offset the reduction in income tax, the commission called for a revolutionary new tax for business and consumers.
The current retail sales and corporation taxes would be eliminated, replaced by a broader business tax that would tap practically every type of free enterprise, including service sector firms like lawyers and business consultants currently not hit by the sales tax.
Calling the business net receipts tax “revolutionary” is actually understating it. Nowhere in the developed world (and probably nowhere in the world, period) does such a tax exist. As Jean Ross of the California Budget Project explained, the BNRT could backfire very badly:
The new tax would also encourage relocation of California jobs to foreign firms that would be beyond the reach of California’s tax collectors. Incentives for offshoring could be created by provisions rooted in a highly technical, but extremely important, area of tax law. So-called “nexus” issues are among the most contentious in tax law and govern what activities states can and cannot legitimately tax.
There are considerable grounds to worry that courts would constrain the state’s ability to tax service providers – such as call center operators or consulting firms – located entirely outside of California. Should the courts rule against the state’s ability to collect the tax, billions of dollars of revenues – sorely needed to balance an out-of-balance budget – could be lost, and businesses would receive substantial tax savings from moving jobs out of California.
The whole package would also represent a major shift in the tax burden away from the rich and onto everyone else. Jean Ross again:
The magnitude of the shift proposed by the Commission is nothing short of stunning. The changes to the personal income tax structure alone would reduce income taxes paid by the poorest 62 percent of California taxpayers by $4 per year, on average, while providing six-figure breaks to the millionaires. The bottom 81 percent of the income distribution – the vast majority of all Californians – would receive 10 percent of the personal income tax cut, while the top 0.2 percent would receive 27 percent of the benefits.
Also as expected, representatives from virtually the entire California economic spectrum, including management and labor, agreed that the proposals would do severe damage to California’s government and economy. Cal Labor Fed Secretary-Treasurer Art Pulaski explained his opposition:
The proposals are a step backward, shifting the tax burden from the wealthiest taxpayers to middle- and low-income families at a time when we can least afford it. If enacted, these proposals would entomb California in perpetual recession.
Even the Cal Chamber, usually a friend of crazy right-wing schemes, called the report “fatally flawed.”
That hasn’t stopped Arnold Schwarzenegger from calling a special session to try and cram this thing down Californians’ throats. We’ll have to mobilize to let our legislators know that this plan and its constituent parts need to be pronounced dead on arrival, and buried deep underground.
We cannot let Arnold’s effort to finish off the California Dream succeed.