A time for tax reform

By DAN WALTERS

California’s state budget crisis is an immense political and financial mess, born of decades of single-purpose, shortsighted political decision-making, coupled with an ever-evolving economy.

How, when — or even whether — it will be resolved is very uncertain. As it worsens, politicians are floating ever more esoteric proposals, the latest being Gov. Arnold Schwarzenegger’s scheme to hock the state lottery.

If anything good is to be found in the perpetual budget debacle, it is a growing consensus among the state’s politicians and civic leadership that our convoluted state-local tax system is a major contributor to the problem.

The system generates too much money during economic booms, enticing politicians to overspend. But revenues drop sharply in even the mildest economic downturn, creating chronic deficits.

The governor said he wants a “bipartisan tax-modernization commission that will give California a tax system that serves modern California better.” It echoed what the new speaker of the Assembly, Karen Bass, said earlier in the week.

“I want to set up a commission outside of the Legislature that will look at more long-term solutions and evaluate whether the tax structure we have now makes sense, given that it was devised in the 1930s when we had an entirely different economy,” said Bass.

It’s certainly not the first time that the notion of tax reform has floated through the Capitol, but no previous effort, whether mounted by Democrats or Republicans, has even gotten to first base.

Liberals fear that bringing more stability to a volatile revenue system might mean reducing the progressiveness of the income tax, reducing the burden on the affluent and tapping more into the stable incomes of middle-income families. Conservatives fear that tax reform would be a smoke screen for raising taxes to cover the state’s chronic deficits, perhaps through changing Proposition 13, the state’s landmark property tax limit ballot measure.

“The goal of tax reform should be twofold,” Mark Paul of the New America Foundation, a cheerleader for tax reform, has written. “One is to generate a more reliable revenue stream. The other is to make the tax code more reflective of California’s changing economy, which in turn could stimulate more growth.”

Would a politically appointed commission confine itself to those limited, and presumably revenue-neutral, goals, especially during a budget crisis? Even if it did, it still would face the political impediment that any change in tax law benefits some and disadvantages others, and the losers always bitterly resist change.

Assuming that a tax reform commission could keep its focus and could overcome the natural resistance to change, it would have a target-rich environment in which to operate — closing loopholes that either have outlived their purpose or didn’t have any in the first place, widening the sales tax to include at least some services to reflect changes in consumer spending, and aligning tax policy with larger societal goals of expanding the economy and encouraging investment.

 Regardless of how the current fiscal crisis plays out, tax reform is a cause whose time should have come.

(Walters writes for the Sacramento Bee.)

(Editor’s note: The May 22 Our View editorial misstated the post of Rich Jager, a candidate for Napa County Supervisor in District 5. He is a member of the Napa County Planning Commission.)

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