Life for the Tax Commission Proposal Depends on its Heart

Nine members of the tax commission signed the final report submitted yesterday to the governor and the legislature. Five members refused to sign. Ironically, if this proposal were a tax measure it would fail because it did not receive a two-thirds vote.

Justification for the two-thirds vote found multiple times in the state and federal constitutions means consensus has been achieved on important matters. There was no consensus within the commission that this tax plan is the remedy for what ails California.

The final report from the Commission on the 21st Century Economy was a bold attempt to re-make the state’s tax landscape. The spirit of what was attempted – restructuring tax codes to fund government through economic growth – should be applauded. There should be no penalty for producing a daring, experimental plan.

However, the plan is centered on a new tax proposal that violates a basic canon of good tax policy. The business nets receipts tax (BNRT) is unclear. Taxpayers do not know how it will affect them.

Berkeley and Democracy

Protests at UC Berkeley and other UCs yesterday objected to budget cuts to the university system. The day before, at UC Berkeley, professors told an audience of students why the university was in such difficulties and why they should actively protest. Many speakers blamed Proposition 13, of course. But, according to the Daily Californian one political science professor said that the tax revolt was "rebellion against democracy; keep what you earn and no democracy can tell you otherwise."

Meg Whitman Launches Her Campaign for a New California

Under the faded letters on a building wall spelling out CALIFORNIA, hung a banner declaring: Meg 2010, A New California. The juxtaposition of the faded letters with the hope of renewal was quite intentional as Meg Whitman announced the theme for her gubernatorial campaign.

Declaring her candidacy under a blazing sun in Fullerton, Whitman promised to focus on three key issues to build a New California: creating jobs, stopping and slashing regulations, and improving education.

Timing is everything, they say, and the candidate’s hard-hitting attack on business regulations could not have been better timed. Less than a day before the announcement, a study mandated by the legislature on the cost of regulation on California small business was released. It revealed some staggering numbers.

The report said that regulation costs small business nearly $493 billion and 3.8 million jobs in California. In her speech, Whitman promised, “On my first day in office, I’ll issue a moratorium on all new regulations until our economy has begun to recover.”

Dancing with Gavin: The SF Soda Tax (Fee)

Dancing with the Stars begins tonight and the show should have reserved a spot for the nimble San Francisco Mayor, Gavin Newsom. His proposal to charge a fee on city retailers who carry soda neatly dances around the legal requirement that all local taxes receive a vote of the people.

Voter approval would be required if a tax was affixed to each individual can or bottle of soda. However, Newsom wants to avoid the voters having a say by slapping a fee on retailers who carry soda.

His ploy may not stand up against legal challenges, which the mayor, himself, acknowledges will come.

No word on how Newsom wants San Francisco to use the money. In the past when discussing a possible tax on soda, he has suggested funding an exercise and media campaign to warn about health problems that he says are associated with soda drinking.

A Lt. Governor Who Could Become Government Reform Czar

Talk about a public private partnership – how would the issue of government reform fare if a chief architect of privately funded reform ideas holds one of the top constitutional offices in the state? It’s possible if Governor Arnold Schwarzenegger selects former Assembly Speaker Bob Hertzberg to be the interim Lt. Governor with a portfolio as the new czar for governance reform.

No one knows if the governor would select a Democrat for the post if it becomes vacant, but Hertzberg’s name is frequently mentioned as a possibility. It is hard to imagine Hertzberg wanting the post until you consider what he has been up to lately.

The effusive Hertzberg is co-chairman of California Forward, the foundation funded government reform project that is just now issuing ideas on how to reform California’s dysfunctional government.

There has been much speculation about whom Schwarzenegger would appoint to the Lt. Governor’s office should the current occupant of that office, John Garamendi, win a congressional seat in November.

Poizner and a Capital Gains Tax Cut

Soon after taking over the position as Speaker of the Assembly, Karen Bass held a meeting at the Los Angeles Chamber of Commerce to discuss ideas to improve California’s desperate fiscal situation. I believe her plan was to convince members of the business community that more revenue was needed and to seek suggestions on how to go about getting it. In other words, which taxes can we raise?

I offered what I said would probably sound like a counter intuitive proposal: Cut the capital gains tax. In cutting that tax I suggested more revenue would come quickly into the government for the tax cut would convince holders of assets that this was a good time to sell their assets and receive the tax benefit. I said that capital gains cuts usually generated some quick revenue.

Another participant at the meeting challenged my statement saying that was not always the case. I turned to an economist who studies the California economy and asked for his opinion. In cautious terms his bottom line answer backed me up saying that, yes, the record shows that capital gains cuts usually boosted government revenue in short order.

Special Sessions, Here We Come

The Legislature didn’t finish a water plan before adjourning the regular legislative session at the end of the week. Perhaps legislators will deal with water in a special session. The prison deal didn’t cover savings projected for the prisons in the recent budget agreement. Perhaps in a special session. The tax commission proposal will soon be presented and the governor wants to deal with it right away. In a special session. And education reforms? A special session is scheduled for that, too.

Taken together, the coming special legislative sessions are looking more and more like a regular session of the legislature. And these sessions hold no promise that they will be more productive than the regular session just completed.

Special sessions of the legislature are supposed to be few and far between. The idea is for the legislature to concentrate on a particular thorny problem and resolve it without the distractions a regular session provides.

But, if one special session is piled upon another, the special session is not special any more. Complex issues are subject to horse-trading and distractions are not minimized.

Tax Commission Proposal May Face Litigation over Two-thirds Vote Requirement

After yesterday’s session of the Commission on the 21st Century Economy it appears we are still a long way off from seeing a new, dramatically different tax plan approved for California. But when the plan does face a legislative vote will it need a majority vote to pass or a two-thirds vote required for tax increases?

Commissioners underscored the uncertainty of what a new Business Net Receipts Tax would produce in revenue. The BNRT is the key to the new tax plan. Revenue raised by the BNRT, which would include capturing taxes on services as well as goods, will be used to offset tax cuts in the proposal. The plan calls for elimination of both the corporate tax and the state portion of the sales tax and lowering the personal income tax rates.

The goal of this revenue-balancing act is to produce a package that is revenue neutral. The search for revenue neutrality is an important legal distinction because the legislature would mark the proposal as a majority vote bill.

Tax Commission Puts Forward its Plan

The Commission on the 21st Century Economy debates and perhaps votes on the new tax plan it has shaped over the past nine months at a Los Angeles meeting today. I say “perhaps” because I suspect the final product won’t be agreed upon so quickly. There’s a lot to discuss in the proposal. Since a back-up meeting is set up for Monday just in case, the betting here is the Monday meeting will be called.

The plan’s ingredients have been bantered about for some time: A new Business Net Receipts Tax (BNRT), a form of a value added tax; elimination of the state corporation and franchise tax; elimination of the state sales tax; and reducing the number of personal income tax brackets to two at 6.5% and 2.75%.

You can read the outline of the plan here.

Many hurdles exist for the plan to become a reality, not the least of which is the reaction of taxpayers. Business taxpayers are not certain what the effects of the new business net receipts tax will be. One thing they do know, the BNRT started out with a tax rate of 2.77% when it was first drawn up, increased in later discussions to over 3%, and is presented in the committee documents at 4.2%.

Part-Time Legislature and Initiatives – The chicken and egg argument will continue

Looks like there’s concern out there that the idea of a part time legislature has legs. It certainly seems to be a concern from those on the left and those that defend the legislature.

Yesterday, I suggested that we consider a debate on the part time legislature in the context of the mushrooming use of the initiative process since the legislature became a full time institution. I wasn’t advocating for the part time legislature, just raising questions and pointing out facts. Frankly, I haven’t even made up my mind, yet, although I think a part time legislature in one form or another is worth considering.

In the comments section after my piece, Steve Magviglio, who often speaks for the Assembly Speaker, listed a number of reasons that have hindered the legislature from doing its job more effectively and warned of the dangers of a part time legislature.