The governor’s tax reform commission has submitted its recommendations, and the centerpiece of the report, a new business tax, has business-advocacy groups crying foul and gubernatorial candidates essentially ignoring the plan. For the moment all is quiet on the legislative front, as six recommendations issued by the Commission on the 21st Century Economy’s , the official name of the tax reform commission , await the process of being crafted into a bill for the Assembly and State Senate to consider. It appears that whatever legislation arises may be dead on arrival. “I’d be surprised if (the recommendations) passed in (their) current form, given the make-up of the legislature as it is now,” said Stuart Waldman, president of the Valley Industry & Commerce Association (VICA). VICA has thus far declined to publically disavow or support the plan. Nor has the Valley’s most influential public policy group issued its own preferences regarding tax reform. “We discussed trying to come up with some ideas, but there was a feeling that we would wait and see what the commission proposed,” Waldman said, adding that he is initially disappointed by the proposals. But, he said, VICA is still examining the commission’s findings. “We haven’t taken a position to oppose,” Waldman said. “We’re not really sure and won’t be until there is a bill.” Waldman expects the top leadership of the Assembly to formulate a bill based on the commission’s recommendations before the end of the year. Meanwhile, the governor and the major gubernatorial candidates could not be further apart from one another regarding the panel’s tax-reform outline. Again finding himself in the all-too-familiar position of promoting a seminal policy with few allies or adherents, Gov. Arnold Schwarzenegger is somehow optimistic about the prospects of signing a law that he believes will save California from fiscal chaos before he leaves office. “I will sign a bill,” he has proclaimed. Contrastingly, Assembly Speaker Karen Bass’ cool statement in response to the Sept. 29 release of the commission’s report reveals the dimness of support for this latest incarnation of tax reform, even on the bright side of the governor’s political landscape. After claiming some credit for inspiring the creation of the commission, and acknowledging the sacrifices of the bipartisan panel, Speaker Bass announced that the Assembly Revenue and Taxation Committee would be holding hearings on the commission’s recommendations. “I know there have been concerns raised by the business community and concerns raised by advocates for middle class families and low income workers,” Bass said. “Those concerns will be reviewed in the committee process.” Californians deserve a fair and full assessment of the ways these recommendations would affect them , whether positive, negative or neutral,” the statement added. At the root of California’s budget woes is the issue of an unpredictable revenue base. As VICA’s Waldman points out, this state is too reliant upon a small pool of top-end taxpayers for too large a portion of its income. “It’s a hard system to make it work in economic down-times,” Waldman said. “As a state we rely so much on the personal income tax, and on such a small portion thereof, that there are 144,000 wealthy individuals upon whom we rely on so heavily that we have no stability in our tax system.” There is nearly universal agreement that overreliance upon a group that accounts for well under one percent of the entire tax base for, as George Will wrote in the Washington Post recently, 50 percent of the state’s revenue stream is a recipe for unending cycles of volatility. The commission suggests eliminating corporate income taxes, as well as the so-called franchise minimum tax, and the state sales tax, plus drastically cutting personal income taxes, at the same time introducing a business net receipts tax (BNRT). Additionally, the commission advises the creation of an “independent tax dispute forum.” It also focuses heavily on the establishment of a new Rainy Day Reserve Fund. The unexpected findings were not unanimously agreed upon by all committee members. In fact, only nine of the 14 members endorsed the five-year plan. The details of the proposal were so unexpected that few politicians have been as quick to condemn it as Sen. George Runner (R-Antelope Valley) has done. “The most dreadful recommendation is the idea of creating another hidden tax,” Runner said. Yet, a consensus remains to be seen vis- & #341;-vis the BNRT and the other provisions of the plan. The major gubernatorial candidates have yet to formulate their own opinions about the plan’s specific proposals. In fact, several failed to supply the Business Journal with statements about their reactions to the plan after repeated attempts to obtain them, and promises to do so. In fact, only San Francisco Mayor Gavin Newsom responded directly. Even his response was generic, however. “The very fact that California needed a special commission to solve our budget problems indicates the system is fundamentally broken and there’s a lack of leadership at the statewide level,” he said.
Business Groups Cool to State Tax Reform Panel Proposals