A twist in tax reform debate

Ideology divides California panel of experts

By DAN WALTERS

The blue-ribbon commission charged with overhauling California’s tax system is heading for an ideological clash.

The commission was charged with reforming a revenue system that has been widely criticized for its volatile reliance on income taxes on high-income Californians and its disconnect from 21st century economic realities. Gov. Arnold Schwarzenegger and legislative leaders have said they hope tax reform would smooth out the boom-and-bust cycle in state budgets that has resulted in huge deficits.

At the behest of commission leader Gerald Parsky, the commission, which has been meeting since January, was moving toward a flat rate income tax system that would shift more of the burden to middle-income taxpayers, eliminating the corporate income tax and replacing the sales tax with a broader, European-style tax on all “net business receipts.”

But liberals balked, and this weekend completed what they call the “blue plan” that would retain the progressivity of the current system and make a number of other changes, including removing Proposition 13’s property tax limits from commercial property.

On Saturday, Santa Cruz County Treasurer Fred Keeley dispatched the blue plan to Parsky and asked him to put it on the agenda for Thursday’s meeting, at which the commission was to finalize its major recommendations. The major features of the blue plan are:

• Create a “rainy day fund” from unanticipated revenue to smooth out revenue dips — a longtime Schwarzenegger goal.

• Direct a third of the taxes on capital gains — the most volatile form of income — into the reserve; another third into one-time spending such as debt reduction and allow the final third to finance current spending.

• Study the net receipts tax, but in the meantime, extend the sales tax to services, rather than confining it to retail goods such as cars and furniture. Eliminate the sales tax on business purchases.

• Create a “split roll” so that property taxes on commercial property are based on current values, removing it from Proposition 13’s limits, a longtime goal of liberal tax reformers.

(Walters writes for the Sacramento Bee.)

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