Working in relative obscurity since its inception, the Commission on the 21st Century Economy –simply known as the tax commission—will find itself in the spotlight now that the budget debate is back at Square One. Can the commission propose a tax system that taxpayers view as fair; while at the same time bring in increased revenue through an expanded economy?
That’s a tall order, but with the frustration growing over proposed major cuts and a rejection of tax increases in the recent Special Election, there seem few alternatives that would bring about consensus from a majority of Californians to solve the budget dilemma.
The commission took a break from public sessions to await the results of the election. The Governor’s executive order first mandated the commission bring in a report on refashioning the tax code by mid-April. That deadline was pushed back until the end of July.
The commission’s charter is to deal with the volatility of state revenues, improve the state’s ability to compete with other states for jobs and produce a tax code of simplicity and clarity for the public.
Commissioners searching for the secret tax formula might heed the advice of Gold Rush era California economist Henry George, whom I have quoted before. “The mode of taxation is, in fact, quite as important as the amount. As a small burden badly placed may distress a horse that could carry with ease a much larger one properly adjusted, so a people may be impoverished and their power of producing wealth destroyed by taxation, which, if levied in any other way, could be borne with ease.”
What the tax commission proposes could go a long way toward re-invigorating the California economy by promoting a tax code that encourages economic growth. The commission can reach the goal of a less volatile tax system and encourage growth through a flat or, at least, a flatter income tax code. Dropping the capitol gains rate should also encourage economic activity and at the same time produce more revenue for government.
A tax code that encourages job creation and business productivity will go a long way to help California escape its deficit hole.
What the commission will recommend is a mystery. The commission has spent a lot of time considering spreading the sales tax to services while reducing the tax rate. Will voters see that as a positive change or as a tax increase on services they purchased before tax-free? There have been different attitudes expressed by commissioners on various tax issues such as business property tax, carbon tax, and other proposals.
So far, there does not seem to be a consensus on the diverse board, despite chairman Gerald Parsky’s desire to bring in unanimous recommendations to present to the legislature and governor. Convincing the legislature to support any proposal on an up or down vote requires consensus amongst the commissioners, Parsky believes.
With the defeat of the Special Election measures, and an expectation that a partisan divide will keep the legislature tied up in knots, when the commission meets again on June 16 at UCLA to begin deliberating a plan, heat will be on the commissioners to present the legislature a game-saving formula. It’s a long-shot at best.