Opinion

Monday, Jul. 13, 2009

Ideology divides tax panel

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The blue-ribbon commission charged with overhauling California's tax system is heading for an ideological clash that could stall any meaningful recommendations to Gov. Arnold Schwarzenegger and the Legislature.

The commission, headed by Southern California businessman Gerald Parsky, 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.

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 Parsky's behest, 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 – those appointed by the Legislature – 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, the leader of the liberal faction, 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 in San Francisco, 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 – and direct a third of the taxes on capital gains, the most volatile form of income, into the reserve.

• Direct another third of capital gains taxes 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, and 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.

• Allow cities and counties to raise local sales taxes by up to 1 1/2 cents per $1 of sales with simple majority voter approval rather than the two-thirds now required.

• Reduce the corporate income tax rate, change the allocation formula for taxing multistate corporations and eliminate some corporate tax loopholes.

• Impose a new tax on carbon-based fuels such as gasoline to reduce their use, with rebates of carbon taxes to state income taxpayers for no net revenue gain.

• Make tax loopholes, known to insiders as "tax expenditures," more transparent and subject them to automatic repeal unless renewed by legislation.