Nope, this will not work. The Parsky Commission has released its proposal, and to put it mildly, it is not acceptable.

Here is what it contains, (H/t to Capitol Alert)

• A reduction in income taxes across the board, but the reduction will be most beneficial to upper income Californians.
• The elimination of the corporation tax
• The phasing out of the state portion of the sales tax (5%)
• A Business net receipts tax. It is a tax on all revenues less capital expenditures.  It has some big loopholes

Arnold wants an up or down vote on this package, and I can tell you pretty much right now that there aren’t the votes for this.  Business groups are already screaming about it, and you can be assured that the Left won’t be particularly happy.  Chris Edley, the Dean of Boalt Hall (Berkeley’s law school) and John Cogan, a Hoover Fellow, want the Legislature to seriously consider the merits of the plan, and you know, do the job to which they won election by crafting policy.  Arnold isn’t so into that.

Nonetheless, I can’t see how this survives the Legislature.

We’ve been pessimistic about the so-called Parsky commission, whose task it was to reform the tax code. At first, the concept seemed benign enough, a panel to investigate ways to reduce volatility in our revenue. Terriffic.  But we became suspect when Gerald Parsky was named chair, and we haven’t really felt a whole lot of enthusiasm for the ideas emerging out of the commission. Mostly because they are regressive changes, increasing taxes for the middle class and reducing taxes on the wealthy.  Because, you know, it’s better to have stability than a sound economy and a growing middle class.

At any rate, the big news today is that the Governor plans on calling a special session for the fall upon completion of the Parsky Commission’s assigned task.  Now, the problem here is that there may not be one plan. As Dan Walters originally reported, Fred Keeley has introduced the idea of a so-called “Blue Plan” for a more progressive reform of the tax code.  

Given the distance between the two sides only recently, it seems unlikely that a) the Commission will be able to produce a unanimous report or that b) that report wouldn’t be DOA in the Legislature.  As Parsky and the staff at the “21st Century Commission” have outlined, the biggest component of both plans is to merely increase taxes on those making between $20,000-200,000 and to decrease taxes on those making between $200,000 and over. In that large PDF file, under fairness (on page 14) they have the phrase “Reduces Progressivity Somewhat” and “Increases Number of Taxpayers.”  Because somehow those are fair? Well, let us just say fair is in the eye of the beholder.

There are some other bits and pieces of both plans, but both are odious to any progressive.  And a Democratic Legislature, if only given the option of an up or down vote, would be required by their constituencies to vote No.

Now, the Keeley plan was still quite nebulous before, and few details are really out there. But there the problem is the same that we have faced in the past, Republicans are unwilling to vote for anything with an ounce of progressivity. It would be hard to imagine any tax commission dealing with what ultimately needs to be dealt with in this format.

So, in September or October, we’ll go through some Kabuki to come up with what we already know: this system is too broken to fix this system.

UPDATE: I’ve added the Governor’s Order  over the flip.

WHEREAS California is and should

remain the best place in America to live, work and raise a family; and

WHEREAS California’s long-term prosperity requires that employers and

entrepreneurs invest, remain and grow in the state and that workers desire to

live in the state; and

WHEREAS the quality of life for Californians benefits from essential

and important services provided by state government directly and through

funding for local government operated programs, and it is beneficial for those

essential and important services to have a stable and predictable source of

funding; and

WHEREAS General Fund revenue over the last several decades has

fluctuated dramatically due to changes in the economy in general, but primarily

as a result of the volatility that is inherent in California’s current tax

system; and

WHEREAS the volatility inherent in California’s current tax system is

reflected by fluctuations during the last decade, as exemplified by:

           

(a)        a 28.1% increase in personal

income tax revenue in Fiscal Year 1999/2000, followed by a 25.9% decrease in

personal income tax revenue in Fiscal Year 2001/02;

           

(b)        a 22.7% decrease in corporate

income tax revenue in Fiscal Year 2001/02 and a 27.6% increase in corporate tax

revenue in Fiscal Year 2002/03;

           

(c)        an 11.1% increase in sales and

use tax revenue in Fiscal Year 1999/2000 and a currently estimated 1.4%

decrease for Fiscal Year 2007/08; and

WHEREAS the volatility inherent in California’s personal income tax is

driven significantly by its reliance on capital gains tax revenues, which have

experienced decreases in the last decade as great as 59.1% in tax year 2001,

and an increase of 64.9% in tax year 2004; and

WHEREAS this fluctuation in General Fund revenues creates difficulty

in funding the operations of government year-to-year, as the need for state

services such as operating state parks, operating state prisons, overseeing

elections and providing funding for healthcare and social services do not

change in response to revenue, but in relation to population, demographics and

service availability; and

WHEREAS this fluctuation in General Fund revenues makes it even more

difficult to plan for those activities of government which, due to their

magnitude, require funding over several decades, including projects for

environmental remediation and infrastructure development; and

WHEREAS the California economy has changed significantly since our tax

code was designed for the economy of the last century, shifting from a

primarily manufacturing- and agriculturally-based economy to an information-

and innovation-based economy; and

WHEREAS, California’s current tax system could be improved to provide

greater incentives for firms to increase employment in the state and invest

more in entrepreneurial activities and research that lead to high paying jobs

and more exports; and

WHEREAS an improved tax system would decrease the pressure for future

tax increases to address revenue shortfalls that will continue to occur if the

volatility of the current system is not reduced; and

WHEREAS Californians would benefit from an improved tax system that

supports a strong economy and job climate and provides a more predictable

revenue source for essential and important government services; and

WHEREAS elected officials could benefit from a study of tax system

alternatives and information to develop strategies to improve the state’s tax

system; and

WHEREAS I established the Commission

on the 21st Century Economy (Commission), and the Commission has

made excellent progress in its review of the existing tax structure and has

identified reforms to make California’s tax structure more aligned with the

modern California economy; and

WHEREAS the complexity and

far-reaching nature of tax reform necessitates time for thoughtful

deliberation, careful analysis and public comment; and

WHEREAS, in consultation with the Legislative leaders, I will call a special session in September 2009 to consider the

recommendations made by the Commission to improve California’s state tax

system. 

NOW,

THEREFORE, I, ARNOLD SCHWARZENEGGER, Governor of the State of

California, by virtue of the power and authority vested in me by the

Constitution and statutes of the State of California, do hereby issue this

Order to supersede Executive Orders S-12-08, S-01-09 and S-03-09 and become

effective immediately:

1.  The Commission on the 21st Century Economy (Commission) is hereby

established.  It shall consist of fourteen members, seven of whom shall

be appointed by the

Governor, three of whom shall be appointed by the Speaker of   the

Assembly, three of whom shall be appointed by the Senate President pro

Tem, and

one of whom shall be appointed jointly by the Speaker of the Assembly

and the

Senate President pro Tem. The Governor shall designate one of the

members as

chairperson. The members of the Commission shall serve without

compensation and at the pleasure of the official who appointed them. 

2.   On or before September 20, 2009, the Commission shall deliver a

report to the Governor and to the Legislature with recommendations to change laws to

achieve the following goals:

           

a.         Establish 21st century tax

structure that fits with state’s 21st century economy;

           

b.         Stabilize state revenues and

reduce volatility;

           

c.         Promote the long-term

economic prosperity of the state and its citizens;

           

d.         Improve California’s ability

to successfully compete with other states and nations for jobs and investments;

           

e.         Reflect principles of sound

tax policy including simplicity, competitiveness, efficiency, predictability,

stability and ease of compliance and administration;

           

f.          Ensure that tax

structure is fair and equitable.

3.  The Commission shall be disbanded 30 days after delivery of their

report unless the Commission’s service is extended by further Executive Order.

4.  The Commission shall comply with applicable open meeting laws.

IT

IS FURTHER ORDERED that State Agencies shall cooperate and provide

support to the Commission in the implementation of this Order. Other

entities of State government not under my direct executive authority, including

constitutional officers, legislative branch, judicial branch, and local

agencies, are requested to cooperate and provide support to the Commission.

This Order

is not intended to create, and does not create, any rights or benefits, whether

substantive or procedural, or enforceable at law or in equity, against the

State of California or its agencies, departments, entities, officers,

employees, or any other person. 

I

FURTHER ORDER that, as soon as hereafter possible, this Order be filed

in the Office of the Secretary of State and that widespread publicity and

notice be given to this Order.

 

IN WITNESS WHEREOF I have

hereunto set my hand and caused the Great Seal of the State of California to be

affixed this 29th day of July 2009.

ARNOLD SCHWARZENEGGER
Governor of California

ATTEST:
DEBRA BOWEN
Secretary of State