The state tax commission's report got its first airing in the Legislature this week, as the Assembly Revenue and Taxation Committee held a two-day hearing that included testimony from commissioners, tax agency representatives and tax policy experts, including Cal-Tax Vice President and General Counsel Michele Pielsticker.
The hearings on the Commission on the 21st Century Economy's proposal began October 8 and October 9. Based on questions and comments made by committee members, it appeared that the commission's recommendations are not likely to get far in the Legislature.
"We're not locked into this proposal," said Assemblyman Charles Calderon, who chairs the committee. Assemblyman Joe Coto agreed, and urged lawmakers to give equal attention to proposals that were proposed by individual members of the tax commission but were not supported by a majority of the panel.
Mr. Calderon added that his committee will hold a hearing on October 14 to "really get to the nuts and bolts of the proposal." That hearing is expected to feature testimony from several academics.
The first day of the Rev & Tax Committee hearing included a lengthy presentation of the commission's proposal by commission Chairman Gerald Parsky, followed by dissent from Commissioners Jennifer Ito and Fred Keeley, who were among the five members who
Mr. Calderon pressed Mr. Parsky on whether the nine commissioners who signed the proposal all believe the recommendations should be enacted. The tax commission chairman said those who signed the plan endorsed the idea of the Legislature "vigorously reviewing it."
Former Assemblyman Fred Keeley, now the treasurer of Santa Cruz County, testified as to why he did not sign the proposal. Mr. Keeley was particularly irritated that his proposal to double the state's gas tax did not gain traction in the commission, and he said he did not agree with the chairman's view that the commission's final plan should be revenue-neutral overall.
Commissioner Jennifer Ito, who spoke infrequently during the panel's 10 public hearings, told the committee that "there was never an opportunity … to state where we personally stood" on the issues being discussed.
Legislative Analyst Mac Taylor said he welcomed the commission's report, because thinking "out of the box" forces people to consider new alternatives and to continually look for ways to improve government. However, Mr. Taylor added that he disagrees with the commission chairman's assertion that California's tax system is outdated and in need of major reform. Mr. Taylor said: "I think we have a decent tax system. It's well-established, it's well-administered, we have broad bases. … And our tax system has generated revenues that have basically grown with the economy. … I think by anybody's measure, that's pretty good performance."
Mr. Taylor also said there is a general misunderstanding about "regressive" and "progressive" taxes, and added that regressivity cannot be determined by rates alone. For example, he said a person paying an income tax of 9 percent on income of $100,000 will pay much more in taxes than a person paying a higher rate of 10 percent on income of $10,000. He said it is likely that the person with the lower income also will receive much more benefit from government programs, including welfare programs, so his or her tax burden may be very low.
Jean Ross, of the California Budget Project, and Lenny Goldberg, of the union-affiliated California Tax Reform Association, both testified in opposition to the commission's report. Ms. Ross said the plan would shift the tax burden to low- and middle-income taxpayers. She also said that the commission's assumption that out-of-state businesses can be taxed with the BNRT is too risky, and that if this assumption did not withstand court challenges, the state's tax collections would be dealt a serious blow.
Representing Cal-Tax, Ms. Pielsticker said, "The rainy day fund … is the single most important recommendation the commission has made." She said the fund would even out the booms and busts while keeping a tax system that has performed well over the course of its life.
Cal-TaxReports, October 13, 2009
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