Here’s a simple, three-step fix to California’s budget.
First, cap the flat tax on individual income at 7.5 percent. Use a 10-year history to estimate what the average level of revenue will be with taxes at that level.
That plus the state sales tax and other levies should really be California’s baseline for spending. It would put California squarely in the middle of other states for total revenue and it would force the legislature to confront what realistically is a reasonable level of spending going forward.
Second, to plug extraordinarily large holes and even out income swings, create a modest severance tax on oil, open the door to higher commercial real estate taxes phased in over five years and increase taxes on liquor and tobacco.
These are taxes that go along with the state’s determination to lead the world in taking on climate change, to even out its tax revenue stream and to be on the leading edge of promoting health, well-being and longevity.
Third, create a reserve fund with an additional tax on gasoline. Again, a goal befitting a state whose favorite car is the Prius and that’s got regulations by the score coming down the pike as AB 32 comes into play.
It’s not that hard, folks. That, combined with the Golden State’s relatively low residential property taxes, would slow the exodus of wealthy people who see places such as Florida and Nevada as mega-tax havens. It would end the extreme disincentive that California’s current income tax burden places on people who want to build businesses, especially small, locally-based businesses that are the backbone of many communities.
The current tax system is a discouragement to business starts because of the extremely high income tax, currently more than 10 percent. The Commission on the 21 Century’s solution, a broadly based, totally untested tax on business employment, simply substitutes a 4 percent tax on business operations for a higher income tax — that is bunk.
In reality, California has lost sight of the First Commandment of public-sector finance: The power to tax is the power to destroy.
Thanks to the total incompetence of the so-called Parsky Commission, California is on the verge of learning the hard way that it can no longer tax innovation and enterprise to death and expect to grow its way out of problems. What is missing is just the tiniest piece of common sense, something we hope we have injected into the conversation.