The Tough Politics of Tax Reform

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

(Editor’s note: This article originally appeared in the Sacramento Bee)

In Greek mythology, Sisyphus’ task of pushing a boulder uphill only to see it roll back down every time may be a metaphor for changing California’s tax system.

State Controller Betty Yee is the latest to say the tax system must change. To undertake the task, she will need grit and patience for the politics of comprehensive tax reform, which will be like pushing that boulder uphill.

Yee’s Council of Economic Advisors on Tax Reform produced a “contextual framework” for reform, by design, highlighting issues but not advancing any firm solutions. 

The major reason to consider rethinking the way Californians tax themselves is that we may run out of Dramamine riding the budget roller coaster from recession to recovery and back again. California is too reliant on a steeply progressive income tax that counts for nearly 70 percent of the state’s general fund. When the rich don’t make as much during a recession, the state budget spirals downward.

The council was instructed not to deal with the spending side of the budget. That is a glaring omission. If one is trying to determine how much revenue is needed to run the state, spending reforms must be considered.

Yee’s council explored two often-discussed changes in the tax system: a split-roll property tax in which business property would be taxed on a different basis than residential property, and taxation of services, which makes up a greater and greater share of the state’s economy.

The business community would have objections to both proposals, arguing that the taxes would hurt job creation – a potent issue that usually ranks No. 1 in voter concern in state polls. The focus on corporations being the target of a split-roll campaign would be countered with the argument that small businesses would be affected as well. All business will raise concerns about service taxes, which come with additional paperwork and regulations.

The controller will find that attacks on tax-reform proposals come from all sides.

From the left will be an aversion to abandon steep, progressive income taxes and corporate taxes. The cries of “tax the rich” and “tax the corporations” have resonance with a large segment of the voting public. National polls this year from Gallup and the Washington Post/NBC indicated that a plurality of Republicans even agreed the rich and corporations should pay more.

From the right, changing Proposition 13 would bring a hailstorm of protest about keeping in place the big leash that controls the taxation hound. Given the frequent polls testing the strength of Proposition 13, it appears that a wide breadth of the California electorate holds onto the Proposition 13 leash, not just voters on the right.

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