SAN FRANCISCO CHRONICLE EDITORIAL: Governor has chance to bring long-term stability to state finances.

January 30, 2015

Gov. Brown should use his poll numbers to craft better tax system
Don’t blow it, Governor. California is more pleased than ever with Gov. Jerry Brown’s performance, according to a statewide poll this week. Once-wary voters might even stomach continuing a higher sales tax, the poll found. Meanwhile, revenues are pouring in, with more money in the future.

It’s political nirvana, a moment to savor for any state leader. But this high point invites a question: Will Brown use this moment to create a genuine legacy that will serve California?

There is no better focus than the wobbly financial system that put him on his pedestal. It’s running full throttle now, thanks to a reviving economy and a flood of stock IPOs that produce billions for Sacramento. But the state’s feast-or-famine tax rules are keyed to upper-income earners and stock market gains that won’t last forever. California’s cash drawer is filled by an incredibly narrow base. Two-thirds of the state budget comes from personal income taxes.

When the wind shifts, watch out. Brown came to office with California facing a $20 billion-plus deficit, a figure produced in years when stocks tailed off and the rich weren’t making large tax payments.

The solution is a broader, more reliable tax system, a notion long favored in the abstract but never given political oxygen. Brown, ever the skeptic, has pointed out the pitfalls in broadening income taxes, saying it means raising taxes on the middle and lower ends. That’s a hard sell in a Democratic state.

Other options are out there, if only Brown will take them seriously. Proposition 13 could be changed to produce a split-roll option, protecting low taxes for residential property while making commercial lots subject to higher levies. But the topic will bring on a fight that few lawmakers want to wage.

Another option getting deserving study is adding services to the revenue system. A raft of personal and everyday businesses is exempt from taxes, mainly because the state’s antiquated rules don’t recognize them. From legal bills to limo rides, much of the state’s booming financial life sits outside the tax system.

State Sen. Bob Hertzberg, a Van Nuys Democrat and veteran legislator, is taking up serious tax reform with SB 8. It would modernize the tax code, remove the peaks and valleys of financial cycles, and protect middle- and low-income earners. He predicts that Sacramento could increase tax revenues by $10 billion.

Brown has offered Hertzberg political running room to work on the bill, which is far from a finished product. Also, the governor is sticking to his pledge to end a sales tax increase worth $6 billion per year that he sold as temporary, making tax reform a stronger option.

The governor has focused on a string of worthwhile goals such as high-speed rail, University of California’s finances and aid for underperforming school districts. His opinion can save or doom any project.

That’s why his support will be crucial in selling a change as monumental as a new tax system. A modern state needs a tax system that reflects its present and future. It’s time for Brown to show leadership in breaking from a fundamentally flawed system for funding the state’s priorities.

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