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Shifting the Burden – California Tax Overhaul Plan Nearing Completion

 

Shifting the Burden – California Tax Overhaul Plan Nearing Completion
Raising children today in the midst of a conflicted culture is a daunting challenge. California parents must work hard to protect the innocence of their children as they grow into adulthood. Concerned moms and dads strive to protect their kids from harm, keep them safe, and shelter them so they can indeed experience the innocence of childhood. At CFC, we share this concern and work hard to inform parents of the issues that affect them and their children.
Our culture creates moral and financial challenges, and California’s families face tough decisions when it comes to providing for their loved ones -- especially now during this recession. Planning for childcare, health care, educational choices, college tuition, weddings and a host of other financial obligations can be an intimidating task. What parents may not know is that a special commission is proposing changes in the way Californians pay state taxes. This could affect us all.
The LA Times reports that a special bipartisan commission’s proposal, meant to solve the state’s worsening budget crisis, is almost ready for the Legislature’s consideration. The plan would lessen the burden from the wealthy and change how taxes on businesses are levied. However, the Legislature may not agree to it.
Last Monday, a bipartisan government commission hammered out the main features of significant changes it will propose for the state’s tax system. Included is a flattened income tax that would largely benefit highest income earners, and the implementation of a broad business levy to replace existing sales and corporate taxes.
The plan is being prodded by Gov. Arnold Schwarzenegger, with the hope of the Legislature’s embrace of the overhaul this fall. It is unclear whether the Legislature will do his bidding, or even how many of the commission’s 14 members will sign the report.
Under the new plan, the existing variety of state income-tax rates would be reduced to just two: 2.75% for a married couple making up to $56,000 annually, and 6.5% for those making more. Itemized deductions would remain only for mortgage interest, property tax and charitable contributions.
Californians making less than $50,000 may pay $4 less in taxes, a 1.8% reduction, while those making $1 million or more would, on average, decrease their tax burden by nearly $109,000 – a cut of more than 31 percent.
Personal income taxes currently amount to 44 percent of the state’s total tax revenue. Under the new plan, the state’s tax figure would drop to just 31 percent. To offset the income tax reduction, a new plan that would create a wide-ranging business tax would be phased in over three years. The plan would encompass virtually every corner of California capitalism, including the service sector – lawyers, engineers, and business consultants – that currently is not taxed.
Lawmakers have been watching the tax commission’s progress, while it has struggled for months to bridge the philosophical issues of both parties. Some of the commissioners are hopeful the plan will get a fair hearing in Sacramento, but others say it will face stiff opposition in the Democrat-dominated Legislature.
“It's very hard to believe the Legislature will go along with this,” said Richard Pomp, a University of Connecticut law professor appointed to the panel by Democratic leaders.
“This freight train has the potential to really damage the California economy.” Gerald Parsky, businessman and Schwarzenegger appointee who served as chairman, said, “Nibbling around the edges isn’t going to make anything better…Business as usual is not acceptable.”
Although most of the 14 commissioners seem ready to sign on to the report, it appears that neither Pomp nor Parsky intend to do so.
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