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A time for tax reform
Friday, May 23, 2008
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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.)
6 comment(s)

kevin wrote on May 23, 2008 7:40 AM:

" Why not just STOP OVERSPENDING when revenues are high? Don't need any legislation or commissions to do that... "

antipc wrote on May 23, 2008 8:44 AM:

" Although I would welcome tax reform if done correctly, spending reform is a much higher priority. Any company that budgeted like our goverment would not last long in the private sector. Also wasteful spending seems to be on our list of priorities.
On second thought maybe we can force spending reform with tax reform. "

Paddy wrote on May 23, 2008 9:26 AM:

" Stop spending my money on those coming to CA for the free-ride. $1.27 billion for teenage pregnancies??!! We need checks and balances to ensure benefits are given to those who are paying taxes and who have been paying taxes for generations.

At least Prop. 13 has helped protect those who have been paying for generations. Don't touch it.

If you want to stimulate growth allow us to keep more of our money. I spend when I have it but I have so little due to what I pay in Federal and State taxes now. The reform I want to see is to cut off the hand that's in my pocket right now!
"

Dwayne wrote on May 23, 2008 12:28 PM:

" Tax reform...??? Just wait until the Democrats take over the Senate, the House, and the White House. Then you'll get your tax reform. Please pass the Vaseline. "

concerned citizen wrote on May 23, 2008 12:54 PM:

" Spending reform and responsibility...never, and that is a capital NEVER touch Prop 13...you could not imagine what would happen. In some other states, the property taxes are exorbetant...amazingly high and with no constraints...so....curb those expenditures, tighten those belts and stick to the budget. "

musikluvr wrote on May 23, 2008 5:20 PM:

" Nothing can be done with Democrats so entrenced and bought and paid for by public employee unions. It would be nice to have a representative legislature willing to work for the good of the people, but with Don Perata there is nothing but protectionism of the status quo. I see no potential for change, unfortunately. "

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