Hope for CA with the Tax Commission Plan
California has clearly hit a wall, which also opens the state to the possibility of truly positive change.
Last week a bi-partisan commission appointed by the Governor and legislature to find solutions to the state’s budgetary and fiscal problems recommended an overhaul of the state’s tax system. Specifically, the commission recommended that the state lower its top marginal personal income tax rate from 10.55% to 7.5% and that the state replace its state corporate and sales taxes with a tax on business net receipts. This lower rate would broaden the tax base making it much easier for budgeting. Additionally, several gubernatorial candidates appear to support a flat tax.
Out of the ashes of California, we may see a green shoot.
See my thoughts on tax reform in my earlier Fox and Hounds post.
California Needs A Flat Tax to Solve its Budget Problem
Stated succinctly, California’s steeply graduated progressive tax structure is the cause of the state’s current fiscal crisis. California’s highly progressive tax code is itself to blame for i.) the great volatility in revenues, ii.) the inevitable build-up of government spending, which leads to ever-higher taxes, and iii.) the tremendous inefficiency and unfairness—hurting the prosperous is not an honorable objective, and hurting the prosperous does not help the poor, which is an honorable objective.
There is no solution to California’s crisis save redressing the fundamental premise underlying California’s progressive tax codes. Because the tax codes in California are so progressive, the state has long periods of feast followed by periods of crushing famine. Sour economic times and progressive tax codes are a surefire recipe for fiscal crisis.