LOS ANGELES DAILY NEWS: California needs a comprehensive tax system overhaul
By Bob Hertzberg, Edward Kleinbard and Laura Tyson
As the new Legislature settles in after the election and Gov. Brown prepares his State-of-the-State address, students are protesting over tuition increases while the state faces yet another funding crisis for higher education. This has set lawmakers in Sacramento abuzz with debate about what tax plan should replace Brown’s temporary increase that will soon begin to wind down — and which he vows not to renew.
This welcome debate should not once more be about cobbling together short-term measures to plug gaps and balance the budget. Instead, it ought to be about a vision of California and how that should shape our tax system, not vice versa.
California has long been known as the land of opportunity, the republic of the future. But for too many of its residents the future is receding. Inequality continues to rise — even though California has one of the most progressive tax structures in the nation.
Something more is needed: namely, a new philosophy of governance that focuses on the overall progressive outcome that can be achieved through modernizing our tax system and investing in the means of upward mobility for every resident. Above all, we need public investment in infrastructure and in public education — particularly higher education — for our increasingly youthful population. These public investments are inherently progressive in the distribution of their benefits, create great new jobs, and open the doors to genuine equality of opportunity.
Beyond these foundations, building and sustaining a middle class means new private sector jobs with good wages. Small businesses, like plumbing contractors, auto repair shops, and restaurants that account for more than 90 percent of the state’s businesses and well over a third of all jobs, are a key rung on the ladder of upward mobility. They need a tax policy that will enable them to grow and add employees.
California’s $2 trillion economy has shifted from being mainly agricultural and manufacturing in the 1950s and 1960s, when the framework of today’s tax system was set, to one based on information and services, which now accounts for 80 percent of all economic activities in the state. To achieve a future as promising as California’s past, we need a tax system that is based on this real economy of the 21st century while ensuring that new revenue is invested in strengthening the ladder of mobility for all our residents.
The lynchpin of that new philosophy of governance begins with Senate Bill 8, to be introduced by Sen. Hertzberg, the proposed Upward Mobility Act. This bill proposes three broad changes to the tax code.
First, it would broaden the tax base by imposing a tax on services, exempting health care and education. Second, it also examines the current corporate tax structure to incentivize both business investment and the payment of a decent and reasonable minimum wage. Finally, SB 8 would reduce personal income taxes (PIT) across the board while retaining its progressive structure.
These latter provisions would be phased in only when it is clear that new revenues from the service taxes are sufficient to replace revenues lost by changes to the PIT and corporate tax and are sufficient to provide low-income workers with an Earned Income Tax Credit.
Projected revenues from SB 8 would be in the range of $10 billion that would be apportioned in the following way: $3 billion for K-12 schools and community colleges, $1 billion each for the two university systems, $3 billion for local governments, and $2 billion for a new earned income tax credit for poor families.
Many of these ideas were first aired by the bipartisan Think Long Committee for California, but are now being more widely embraced by a budding coalition that includes local governments, business, labor, students and the university community.
This is only the beginning, not the end of the debate. But the debate must take place in the broader frame we have proposed that focuses on the progressive outcome the tax system as a whole can produce for all Californians.
If California’s future is to be as promising as its past, we need a tax system that reflects our real economy in the 21st century while ensuring that new revenue is invested in strengthening the ladder of mobility for all our residents.
State Sen. Robert Hertzberg, D-Van Nuys, represents District 18 and is the author of SB 8. Edward D. Kleinbard is the Johnson Professor of Law and Business at USC’s Gould School of Law, and the author of “We Are Better Than This: How Government Should Spend Our Money.” Laura Tyson is an American economist and former chair of the US President’s Council of Economic Advisers during the Clinton administration. She also served as director of the National Economic Council. She is currently a professor at the Haas School of Business of UC Berkeley.
Link to original Op-Ed HERE:
NOTE: This Op-Ed also ran in the San Jose Mercury News as well as several other Los Angeles News Group newspapers.