California Tax Reform Now

Joe Mathews
Connecting California Columnist and Editor, Zócalo Public Square, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010)

No more dawdling and delaying. California needs to pursue tax reform right now.

It’s not just that there’s no time like the present. Or that it’s easier to do tax reform when things are good.

It’s about defense. California needs to do tax reform before tax reform gets done to it.

President Trump and the Republicans in Congress have made clear that they are going to pursue tax changes that will hurt California. They’re fashioning changes that will favor the very rich, increase deficits, and put pressure on federal spending programs – all of which create problems for California, and especially poorer Californians.

And other proposed changes in the federal tax framework could hurt us. The idea of a cap on the mortgage interest rate deduction would hurt us disproportionately, given the cost of our housing and the resulting size of our mortgages. And Trump’s floating of an idea to eliminate the deduction for state and local taxes is squarely aimed at punishing California and other blue states.

While passing a tax pacage won’t be easy, Republicans in Washington D.C. have profound political reasons to do this – if only to show they can do something of substance. So California won’t be able to play only defense, by fighting the package in D.C. It’ll need some offense.

That’s our own tax reform. Immediately, Gov. Brown should call the legislature into special session and develop tax reform on two tracks.

The first track would assume that nothing much would change in taxes. The goals of this would be to make the California tax system more rational and more productive. That means seeking more revenues – but doing it by taxing more of the 21st century economy, lower rates, eliminating exemptions, and seeking to make the state more competitive.

The second track should be quieter—an alternative tax reform that prepares to blunt at least some of the impact of anything that Trump and the DC Republicans can agree upon.

Such an exercise would be a win-win. A special session on tax would find ways to serve California—and protect the state from the federal government. Gov. Brown, who seems to want to spend his remaining days on climate change, will probably resist, so other Democrats and legislative leaders, who say they want to lead against Trump, should take the lead and insist on action by the end of the year.

That’s right – let’s move quickly. This isn’t an election year in California, so the timing is right.

Tax reform now.

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