Gerald Parsky is about to engineer one of the great leaps of faith in modern California policy making. The chairman of the Commission on the 21st Century Economy is assembling bipartisan support for a proposal to radically reshape a state tax system that has been more or less in the same form for nearly 70 years.
This makeover is sailing on the wings of good intentions, on an imperative for action, and on compromise – but most assuredly not on data or analysis. Mr. Parsky knows this, which is why the recommendations to the Legislature and Governor are for "consideration" and for further study, as opposed to outright implementation. This serious panel has brought forth the next Big Thing, but is gingerly – almost sheepishly – nudging it to the world of practical politics.
If, as expected, Mr. Parsky assembles a sufficient majority of Commissioners to support the plan, it will probably look like this:
· Create a new Business Net Receipts Tax (BNRT). The tax base is a business’ gross receipts from all sources less purchases from all other businesses.
· Repeal the Corporation Tax.
· Flatten the Personal Income Tax by reducing number of brackets to two, and reducing top rate from 10.3% to 7.5%.
· Eliminate the state sales tax.
Unresolved issues for the BNRT include the rate (the Commission will try to keep it at or below 4%), transition issues (how to keep the tax changes "revenue neutral" over a five-year phase-in period), and the composition and role of a "technical group," whose job will be to adjust tax rates to maintain revenue neutrality during that implementation phase.
But even before tackling these issues, policy makers must assess whether in fact this massive shuffling of tax sources is good for the California economy and the effect it will have on the many and diverse industrial sectors that comprise the economy. The stakes are enormous since the changes amount to repealing about $50 billion in annual revenues from three existing taxes, and replacing them with a like amount in a single brand-new tax. This is more than half of all revenues to the state General Fund, and about three percent of state GDP.
But don’t take my word for it. In the words of the lead commissioners developing the BNRT proposal:
· A tax change of this magnitude should only occur after the proposal has been fully vetted and all of its ramifications have been fully assessed by the Legislature and the Governor and the public. We believe that the BNRT is sufficiently promising to warrant the Commission’s recommendation that the Legislature and the Governor proceed with a public process to fully evaluate the BNRT proposed herein and, upon satisfactory completion of this process, to enact a BNRT into law as part of the proposed package.
It’s amazing and more than a little disappointing. Just when a truly distinguished panel of Californians is at the point of defining the new tax system and figuring out how it works, its effects, its promise and its limitations, they’re punting to the Legislature – the last body on earth inclined to thoughtful study and deliberation. Only the most pious could manifest the faith required to expect a successful conclusion.