It’s not often that both the Right and the Left agree on tax policies, but they have found common ground in opposing a new tax system proposed in California. Last week the Commission on the 21st Century Economy released its findings on how to revamp California’s tax procedures in order to prevent tax revenue decreases in the future.
Created by Governor Arnold Schwarzenegger through executive order last year, the Commission on the 21st Century Economy consisted of fourteen commissioners charged with the responsibility of creating a tax system that is “more stable and reflective of the state economy.” Faced with a $42 billion budget deficit caused by their overspending, voracious Sacramento politicians want to ensure they can maintain the current unsustainable rate of government growth.
Over the course of nine months, Commission members met throughout the state, holding public hearings and gathering information from tax experts. The Governor even extended his executive order when the Commission failed to submit their report by the original April 15th deadline. Consistent with most government-subsidized projects, the Commission ran six months over its deadline.
The first part of the Commission plan is actually a solid proposal: reduce the maximum personal income tax from 9.3 percent to 6.5 percent and eliminate the corporate and sales taxes. With the fourth highest top individual tax rate in the country, California taxpayers could certainly use some relief. The current 8.84 percent corporate tax rate is the highest in the West according to the Tax Foundation—which also ranks California forty-eighth in its evaluation of state business tax climates. California’s 8.25 percent sales tax is now the highest in the country—which doesn’t include various local sales taxes also levied on citizens.
Reducing or eliminating these burdensome taxes is a step in the right direction for reviving California’s declining economy. But the promising news of tax cuts is negated by the alarming proposal of a business net receipts tax (BNRT). Under consideration in Washington, D.C. as well, the BNRT taxes the “value” a business adds to a product or service. It is calculated by deducting a business’ purchases from its gross receipts, then taxing its net receipts. The Commission recommends a 4 percent BNRT in order to achieve “revenue neutrality”—a euphemistic term for ensuring the government still gets the same amount of tax revenue it currently receives.
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