State tax commission makes recommendations
BRIAN JOSEPH, Sacramento Correspondent
Gov. Arnold Schwarzenegger announced this morning that he will be calling a special session of the state Legislature to review recommendations for updating the tax code, which were released today.
The Commission on the 21st Century Economy, a 14-member, bipartisan committee appointed by the governor and legislative leaders, has been working for nine months on a series of recommendations to simplify the state tax code and reduce tax revenue volatility, a prime culprit behind the state’s budget crisis this year.
The commission, led by former assistant U.S. Treasury Secretary Gerald Parsky and included Anaheim Mayor Curt Pringle, calls for reducing the personal income tax for every taxpayer in California, eliminating the state sales tax and the corporate tax and establishing a new “business net receipts tax,” which apply to all sectors of the California economy, including services.
Under the commission’s proposal, the state would reduce its tax brackets from six to two, with a lower tax rate of 2.75 percent for taxable income up to $56,000 for couples ($28,000 for single) and 6.5 percent for income above that.
Meanwhile, the corporate and sales taxes would be eliminated, which for consumers would drop 5 percent from the sales tax (local sales taxes would still be in place). Replacing those taxes would be the business net receipts tax, or BNRT as its called, which would be a tax of no more than 4 percent on the difference of a business’ gross receipts minus purchases.
The BNRT scheme, which the Associated Press says has never been tried on a wide scale in the United States, was specifically designed to include services (think legal, accounting, engineering, golf lessons…), Parsky said in an late morning press conference at the State Capitol with Gov. Schwarzenegger.
“It is more oriented around a much broader tax base, taking into account what the 21st Century economy is like in California, because the service part of our economy is not in the tax base now,” Parsky said.
Schwarzenegger said if it was solely up to him he’d sign the commission’s recommendation into law immediately. But as it is, the Legislature must approve any changes to the tax code and its widely believed in the Capitol that both Republicans and Democrats dislike the plan.
In fact, only nine of the 14 members of the commission signed off on the plan, with prominent Democrat Fred Keeley as one of the dissenters.
Republicans dislike the plan because they say it will make California’s tough business climate even tougher, while Democrats don’t believe its fair for the wealthy to be taxed at the same rate as the lower and middle class.
Republican State Sen. George Runner of Antelope Valley immediately released a statement saying that the tax commission’s proposals will “kill jobs and evaporate the entrepreneurial spirit that Californian is known for the world-over.”
Both the California Tax Reform Association, which advocates for tax relief on the part of consumers, and the California Chamber of Commerce, which represents business interests, urged caution over implementing the new plan.
Chamber President Allan Zaremberg said: “We must not rush into replacing our 70-year-old tax system with an unproven experiment that may fail to deliver the promised results.”
Association Executive Director Lenny Goldberg went even farther calling it a failure and said “it does not even address the distinct issues of the 21st century economy.”
Commission member Christopher Edley Jr., the dean of the UC Berkeley Boalt Hall School of Law, acknowledged at the press conference that the commission has received very little support for its ideas at public hearings.
“I can’t recall anybody in particular who supported the BNRT at our public hearing,” Edley said. “But I also remember distinctly feeling each person who spoke for opposing it was not fully familiar with what we were working on.”
Senate Leader Darrell Steinberg and Assembly Speaker Karen Bass have both pledged to objectively review the proposals.