"Tax Commission Report Is A Failure," Says California Tax Reform Association
California Political Desk
September 30, 2009
SACRAMENTO, CA----The California Tax Reform Association (CTRA), which participated in many discussions of the Commission on the Twenty-First Century Economy, criticized the report as "a failure to provide a fair, long-term solution to California´s revenue and tax problems."
Executive Director Lenny Goldberg said, among its many failings, "it does not even address the distinct issues of the 21st century economy", which was its supposed charge.
CTRA´s summary of opposition to the report is as follows:
It provides disproportionate tax relief--$7.6 billion yearly-- to the top 3% of income tax payers—those least burdened by state taxes. "The reason that the tax system relies so heavily on the wealthy is because they have an historically unprecedented share of the income", said Goldberg.
It relies entirely for its reforms on a completely unknown and untried tax, the business net receipts tax (BNRT). There are huge legal and economic problems with this tax, including: burdening companies disproportionately which have higher labor costs; burdening companies, including start-ups, with tax which otherwise would have losses; taxing rental housing, childcare, food and other necessities of low income people; assuming the ability to tax interstate commerce which is highly questionable; possibly disadvantaging California-based companies; encouraging the contracting out of labor services, rather than hiring employees. Many critiques of the BNRT have been put forward from virtually every perspective.
Perhaps the clearest critique comes from Commissioner Richard Pomp. Pomp notes in particular that the only effort at a similar tax, in Michigan, is at a very low 1% level, and is integrated with a corporation tax. The proposed California tax would be 4%.
One unnoticed part of the BNRT is that it would fall heavily on rental housing, so that, in a world where homeowners receive major tax benefits, renters would be expected to pay. "With homeowners doing so well in the tax system, it would be a travesty of good tax policy to now burden renters, but that´s what this proposal would do," said Goldberg. The whole distributional impact of the BNRT has not been analyzed, with regard to the extent that it would burden California consumers or fall on domestic businesses.
Elimination of the corporation tax would disproportionately benefit out-of-state shareholders and the federal government. Corporations doing business in California put demands on California services. The profits generated from business in California would be untaxed in this proposal, increasing the return to shareholders, many or most of which may be out-of-state beneficiaries of the tax break. And, since these taxes are deductible from federal taxes at a 35% rate, the outflow of revenue to the federal government from eliminating this tax will be several billion dollars in addition. As Commissioner Pomp has noted, the corporation tax exists in 47 states, and has served California consistently for many years. From our perspective, the issue which needs addressing the corporation tax is the erosion of its base, particularly from the new loopholes put in place in the recent budgets, not its elimination.
The Commission failed to examine one of the dominant changes in the 21st century economy: the growth of internet usage, electronic commerce, digital downloads, internet taxation, and interstate nexus issues which arise from growing electronic commerce. "It is a stunning failure of the Commission that it barely examined the many new issues of the new economy which surround the internet", said Goldberg.
The Commission failed to adequately examine alternatives, such as failures in the commercial property tax, the lack of an oil severance tax, and the option for a carbon tax. CTRA presented twice with regard to the proposal for a split roll, which we have called "the single largest hole in the tax system", but the Commission did no independent analysis, nor did it consider this seriously. Similarly, it never really considered Commissioner Fred Keeley´s proposal for a fuel tax or other approaches to taxing carbon, again a major issue of the 21st century economy.
"Ultimately, the report suggests that California take a complete shot in the dark, basing our tax system on something unknown and untried in order to provide massive tax relief to the wealthy and large corporations," said Goldberg. CTRA also presented alternative approaches to the Commission, including broadening the sales tax base, addressing commercial property, and addressing tax expenditures.
Executive Director Lenny Goldberg said, among its many failings, "it does not even address the distinct issues of the 21st century economy", which was its supposed charge.
CTRA´s summary of opposition to the report is as follows:
It provides disproportionate tax relief--$7.6 billion yearly-- to the top 3% of income tax payers—those least burdened by state taxes. "The reason that the tax system relies so heavily on the wealthy is because they have an historically unprecedented share of the income", said Goldberg.
It relies entirely for its reforms on a completely unknown and untried tax, the business net receipts tax (BNRT). There are huge legal and economic problems with this tax, including: burdening companies disproportionately which have higher labor costs; burdening companies, including start-ups, with tax which otherwise would have losses; taxing rental housing, childcare, food and other necessities of low income people; assuming the ability to tax interstate commerce which is highly questionable; possibly disadvantaging California-based companies; encouraging the contracting out of labor services, rather than hiring employees. Many critiques of the BNRT have been put forward from virtually every perspective.
Perhaps the clearest critique comes from Commissioner Richard Pomp. Pomp notes in particular that the only effort at a similar tax, in Michigan, is at a very low 1% level, and is integrated with a corporation tax. The proposed California tax would be 4%.
One unnoticed part of the BNRT is that it would fall heavily on rental housing, so that, in a world where homeowners receive major tax benefits, renters would be expected to pay. "With homeowners doing so well in the tax system, it would be a travesty of good tax policy to now burden renters, but that´s what this proposal would do," said Goldberg. The whole distributional impact of the BNRT has not been analyzed, with regard to the extent that it would burden California consumers or fall on domestic businesses.
Elimination of the corporation tax would disproportionately benefit out-of-state shareholders and the federal government. Corporations doing business in California put demands on California services. The profits generated from business in California would be untaxed in this proposal, increasing the return to shareholders, many or most of which may be out-of-state beneficiaries of the tax break. And, since these taxes are deductible from federal taxes at a 35% rate, the outflow of revenue to the federal government from eliminating this tax will be several billion dollars in addition. As Commissioner Pomp has noted, the corporation tax exists in 47 states, and has served California consistently for many years. From our perspective, the issue which needs addressing the corporation tax is the erosion of its base, particularly from the new loopholes put in place in the recent budgets, not its elimination.
The Commission failed to examine one of the dominant changes in the 21st century economy: the growth of internet usage, electronic commerce, digital downloads, internet taxation, and interstate nexus issues which arise from growing electronic commerce. "It is a stunning failure of the Commission that it barely examined the many new issues of the new economy which surround the internet", said Goldberg.
The Commission failed to adequately examine alternatives, such as failures in the commercial property tax, the lack of an oil severance tax, and the option for a carbon tax. CTRA presented twice with regard to the proposal for a split roll, which we have called "the single largest hole in the tax system", but the Commission did no independent analysis, nor did it consider this seriously. Similarly, it never really considered Commissioner Fred Keeley´s proposal for a fuel tax or other approaches to taxing carbon, again a major issue of the 21st century economy.
"Ultimately, the report suggests that California take a complete shot in the dark, basing our tax system on something unknown and untried in order to provide massive tax relief to the wealthy and large corporations," said Goldberg. CTRA also presented alternative approaches to the Commission, including broadening the sales tax base, addressing commercial property, and addressing tax expenditures.
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