Another Special Session on Tax Reform

On Tuesday (9/28), the Commission on the Twenty-First Century Economy released their proposals to change California’s state tax system. This Commission was created by the Governor and by the Legislature a year ago to look at ways to reform the state’s tax system.

The Commission proposed to reduce the income tax on the wealthiest Californians arguing that it would reduce the volatility of future state revenues. It also proposes to eliminate the Corporate Income tax and the Sales tax and replace them with a new Business Net Receipt Tax (BNRT).

These proposals are being heavily criticized by tax experts because it would unfairly shift the tax burden from the wealthiest Californians and corporations to working families.

Lenny Goldberg, a tax expert on California’s tax system, calls the report “a failure to provide a fair, long-term solution to California’s revenue and tax problems.” He highlights the following problem with the proposals:

* It provides disproportionate tax relief–$7.6 billion yearly– to the top 3% of income tax payers—those least burdened by state taxes.

* The new BNRT tax would unfairly burden companies with disproportionately higher labor costs; unfairly tax rental housing, childcare, food and other necessities of low income people; and encourage the contracting out of labor services, rather than hiring employees.

* The Commission failed to examine one of the dominant changes in the 21st century economy: the growth of internet usage, electronic commerce, and digital downloads, internet taxation, and interstate nexus issues which arise from growing electronic commerce.

* The Commission also failed to adequately examine alternative reforms: such as inequities in the commercial property tax, the lack of an oil severance tax, or the option for a carbon tax.

What’s Next?

The Governor has called yet a sixth Special Session of the Legislature to address these new tax proposals. We will keep you posted on the development of this special session, as well as the other special sessions on education, and possibly two more special sessions on water and prisons.