Some have called Senate Bill (SB) 8, Senator Robert Hertzberg’s proposal to impose sales taxes on most services in California, needed tax reform. The basic argument made is that while California’s economy has shifted over the past 50 years from being based on agriculture and manufacturing to information and services, the state’s tax policy remains mired in the past. Consequently, a revamped tax system – one that focuses on services rather than personal income, as is the case today – would better reflect this new reality.
Californians can, and should, have an open and honest debate over tax reform. That’s because replacing our current tax system with one focused on services involves real tradeoffs for the state: It would help reduce the volatility of government revenue while at the same time placing a larger burden on low-income families and adding substantial new compliance costs for businesses and taxing agencies.