Super committee and California: Can they each break through dysfunction?
The nation's capital and the capital of the nation's most populous state both seem dysfunctional. But even as the congressional super committee looks set to fail, a bipartisan group of high-profile Californians is readying ballot initiatives to reengineer state government, including tax reform.
(Page 2 of 3)
An independent citizens watchdog. A nonpartisan watchdog for the long-term public interest can act as a counterbalance to the short-term mentality and special-interest political culture that dominates Sacramento.Skip to next paragraph
This impartial “Citizens Council for Government Accountability” would be empowered to place initiatives directly on the ballot for public approval. It will ensure that the public’s priorities remain at the top of the policy agenda over the long-term.
The council would, for example, keep front-and-center such priorities as excellence in education and a world-class infrastructure, working to make sure that California taxpayers get their “return on investment.”
A modern broad-based tax system. It’s time to update California’s tax system to mirror the real composition of our modern service and information economy. A main component will be to tax services.
The ideologically rigid will have a hard time putting this proposal in any box. It is a pragmatic response to the nonpartisan Legislative Analyst’s October 2011 report on California’s budget woes. That report points out that the boom-and-bust “volatility” of the business cycle that wreaks havoc with state finances has increased in recent years – making the state’s reliance on personal income taxes dangerous.
In 2008-09, personal income grew at an anemic 3 percent, and, as a result, general fund revenues plummeted by 19 percent. In 1970, the report points out, personal income taxes accounted for 27 percent of revenue while sales and use taxes accounted for 40 percent. By 2011, reliance on the personal income tax was 57 percent and sales and use taxes only 22 percent.
In those same years, the California economy has been transformed from a mainly manufacturing and agricultural economy to one increasingly dominated by services and information – a metamorphosis mirrored elsewhere in the country. Nearly one half of California’s $2 trillion economy is composed of services – none of it taxed.
If you eat a donut in a coffee shop, the sales tax on goods applies. If you use a legal or financial service, it is not taxed. In other words, the coffee shop donut subsidizes lawyers, accountants, and other services.
THE MONITOR'S VIEW: The promise of e-government
While maintaining California’s progressive income tax structure, we would reduce rates across the board for every bracket and reduce the sales tax on goods from 5 percent to 4.5 percent while broadening the sales tax at a 5 percent rate to apply to services, which are more discretionary. Education and medical care would be exempted. Those with low income would receive a sales tax rebate. Those earning $45,000 and under would pay no income taxes.
This combination of cutting the personal income tax and broadening the tax base will help stabilize the boom-and-bust cycle of the budget in a fair way while generating $10 billion in new revenues annually. That can start paying down the state’s “wall of debt” – for K-12 schools, higher education, for local public safety, and other locally determined needs.