CALPIRG Blog

I try to avoid doomed ideas like the plague. There are too many solvable problems in our state to waste energy and resources on reforms that are going nowhere fast. You would think, especially with his poll numbers, that the Governor would do the same. But today he called a special session of the legislature to overhaul our state’s tax code, cheerleading a proposal almost nobody else likes.

In fact, the final recommendations of the Commission on the 21st Century Economy, a bipartisan group brought together by legislative leaders and the governor, only won the support of nine of the fourteen commission members. Kevin Yamamura at the Sacramento Bee digs into the details of the proposed overhaul, and how it would affect taxpayers, here.

First, the Commission proposes to dramatically lower taxes for the wealthiest Californians, a dubious idea in the midst of the state’s worst budget crisis in recent memory, and one that is unlikely to win the support of the Democrat-controlled legislature. 

The Commission also proposes to abolish the corporate income tax entirely, and replace it with a business net receipts tax (a variation on the European value added tax). There are so many tax breaks and loopholes in our current corporate income tax that I’m intrigued by the business net receipts tax’s ability to tax business more broadly and at a much lower rate. I was disappointed to see, however, that the Commission chose to grandfather in many of the corporate tax breaks, like net operating loss credits, that lead to the unlevel corporate taxes we have in place today.

Despite those tax credits, leading business groups are wary of the uncertainty inherent in the proposed changes. Labor unions are worried about whether the changes would incentivize moving more jobs out-of-state. Especially since the Commission rarely took meaningful public comment in their open meetings (at one six-hour meeting in Los Angeles the Chairman declined to take any public comment at all, even though dozens of audience members had waited patiently throughout the meeting) it's not surprising that they don't have many powerful groups on board with their plan. No one seems to like the proposal, except for the governor.

It's unfortunate, really, because our tax code is sorely in need of updating. We should be taxing business more broadly, and getting rid of tax breaks that unfairly give some companies a leg up over others. And we need a stronger rainy day fund - the best way to deal with the volatility of our economy and our state revenue.  

But this proposal doesn’t have the political support to even get out of the gates. And that’s probably a good thing.