02/11/2015 by Laura Mahoney

California Should Stabilize Taxes, Soften Reliance on Volatile Sources, Group Says


(Photo Credit: Violeta Vaqueiro)

Reproduced with permission from Daily Tax Report 25 DTR H-1 (Feb. 6, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033) <http://www.bna.com>

Feb. 5 — If California elected officials and other leaders want a less-volatile tax system, they should use 2015 to consider a broader mix of taxes and revenue rather than extend temporary tax increases that expire in the next three years, the private nonpartisan group California Forward said.

When California voters approved Proposition 30 to temporarily increase sales and personal income tax rates in 2012, they exacerbated the state's reliance on taxes paid by high-income earners, the group said. The $7 billion annual boost from the increases has helped stabilize the state's finances, but the next economic downturn would cut that revenue in half.

Although some lawmakers have said they would like to extend the taxes, they should instead seize the opportunity created by a strong economic recovery and balanced state budget to have a broad discussion, California Forward said in a Feb. 5 report.

“In 2015, elected officials, stakeholders, and civic leaders have a political window to determine what to do next—and how to balance the need for a stable revenue system with the equally important need to equitably distribute the tax burden,” the group said. “While the debate that rallied public support for Prop. 30 focused on staving off deeper budget cuts, the current conversation is how to finance California's future.”

Lawmakers Agree

California Forward's recommendations, set out in the first in a series of reports it will release during the next few months to explore the state's choices, echoed the priorities of legislative tax committee chairs Sen. Robert Hertzberg (D) and Assemblyman Phil Ting (D) in recent interviews with Bloomberg BNA. Hertzberg and Ting both said they are kick-starting a debate about broad tax changes that could be in place before the Proposition 30 increases expire (20 DTR H-1, 1/30/15).

Before tax changes can take shape in legislation or ballot measures, California Forward is launching a series of regional meetings in the spring and summer to ask local stakeholders their priorities for investment of public funds, how they believe those priorities should be financed and who should control the funds, California Forward Senior Fiscal Adviser Fred Silva told Bloomberg BNA Feb. 5.

Local Knowledge

Local and regional knowledge about the choices at hand will help inform what eventually gets enacted at the ballot or in the Legislature, Jim Mayer, the group's executive director, told Bloomberg BNA. The decisions to be hashed out in the next year go beyond the typical debate over which existing taxes to increase or reduce, he said.

“The goal is not more tax and it's not more spend, it's better results,” Mayer said.

The potential for specific tax increases that interest groups will propose in fall 2015 for the 2016 ballot, such as tobacco taxes and oil severance taxes, could push lawmakers to crystallize a broad, new tax plan and head off measures that are easiest to enact politically but not better in the long run, Mayer said.

“The aggregate of the easiest things to get done is not a good funding system,” he said.

California Forward was formed in 2008 as a nonprofit, nonpartisan policy organization working to improve state government. Its leaders include executives from trade groups, law firms, corporations and educational institutions including McKinsey & Co., Holland & Knight LLP, Silicon Valley Leadership Group and Aera Energy LLC.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at lmahoney@bna.com
To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

For More Information

The report, “Financing the Future: How Will California Pay for Tomorrow?” is at https://cafwd.app.box.com/s/izluytl2gucouf50fbvd57pwet7v98pl.

Reproduced with permission from Daily Tax Report 25 DTR H-1 (Feb. 6, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033) <http://www.bna.com>

Categories: Fiscal Reform, Revenue Reform, Tax Reform

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