Governor-elect Jerry Brown’s goal of reforming and restructuring California will surely follow the well-worn path of tax reform. Brown’s two immediate predecessors, Gray Davis and Arnold Schwarzenegger, both called together state commissions to study restructuring the state tax system.
California’s roller-coaster budget ride is created by its current mix of taxes, particularly the state’s heavy reliance on the steeply progressive income tax. Brown’s effort to smooth the ups and downs of California’s budget problems will bring him around to the tax system.
Davis’s commission, known formally as the California Commission on Tax Policy in the New Economy, was headed by current Los Angeles City Councilman Bill Rosendahl. Among other recommendations, the commission suggested that sales tax rates be lowered but extended to services, that the vote requirement to raise special taxes on the local level be reduced, and that a long look be taken at periodically reassessing non-residential property to market value.
The final report from Rosendahl’s commission was issued in December 2003, one month after Schwarzenegger had replaced Davis. It was ignored.
The new governor made an effort to reform the tax system, appointing political insider and financier, Gerry Parksy to head the Commission on the 21st Century Economy. That Commission, which received much attention on this site, proposed the creation of a new Business Net Receipts Tax, which found political opponents from both business and labor. In essence however, the Business Net Receipts Tax, in a round about way, dealt with the issue of taxes on services. The Parsky Commission plan made little headway with the legislature or interest groups.
The Governor-elect is no stranger to proposing major tax code changes. Brown ran one of his presidential campaigns on the idea of a “flat tax.” I have previously noted Brown’s embrace of the flat tax: “Brown’s flat tax plan of 1992, shaped by supply-side economist Arthur Laffer, called for a 13-percent income tax rate and a 13-percent value added tax while doing away with most tax loopholes. The New York Times called Brown’s proposal the “…one truly creative and important idea to emerge from this Presidential campaign.””
Earlier this year, former presidential candidate and Forbes Magazine impresario, Steve Forbes, speculated that Brown might turn to the flat tax as a way to rescue California from its fiscal woes.
With California’s deficit problems seemingly impervious to spending cuts and tax increase solutions of the recent past, a restructuring of the tax code to promote growth seems a logical step.
Jerry Brown likely will be the third governor in a row to take a shot at tax restructuring.