Dan Walters: It may be time for tax reform
(Published Jan. 24, 2000)
Californians cough up more than $100 billion a year in taxes for state and local governments and schools, and over 80 percent comes from three sources: state personal income taxes, state and local sales taxes, and local-only property taxes.
Changing political, social and economic conditions have altered the way these basic sources of public revenue interact with one another. And there is increasing interest in the Capitol in some sort of reconfiguration.
Taking the three legs of the revenue stool one by one:
Californians' overall state/local tax burden falls somewhere in the middle of the states, but they pay above-average income taxes, sales tax rates are among the highest in the nation, and property taxes, limited by Proposition 13, are among the lowest.
One factor in the interaction of taxes is that property and income taxes are deductible for federal tax purposes, while sales taxes aren't. Another is that sales taxes are considered to be regressive -- falling the hardest on the poor -- but are the most popular form of taxes with voters.
To state Sen. Steve Peace, D-El Cajon, who is trying to generate interest in tax reform, this is backward. "We're sort of addicted to the sales tax," says Peace, even though it's growth is flat and it's non-deductible. Peace would ratchet down the sales tax and increase property taxes, whose deductibility would soften the impact on taxpayers.
Others talk about extending the sales tax to services, which would reflect the changing nature of consumer spending, or recasting the sharing of revenues among state and local governments, perhaps changing the "point of sale" return to local governments or giving cities and counties a portion of the income tax.
These and the many other options are fraught with consequences for the affected interest and taxpayer groups and there's a great reluctance to tamper with the status quo, no matter now illogical it may be. But it's a discussion that should take place because it's central to any hope for creating a rational system of governance for a very fast-growing and fast-changing state. And an expanding economy would be the best time to make a change.
DAN WALTERS' column appears daily, except Saturday. Mail: P.O. Box 15779, Sacramento, CA 95852; phone: (916) 321-1195; fax: (781) 846-8350; e-mail: email@example.com
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Speaker's Commission on State/Local Government Finance