Sen. Bob Hertzberg, author of tax-reform plan to modernize state taxes, responds to state tax study released today
Remarks follow release of Board of Equalization study
SACRAMENTO – Sen. Bob Hertzberg released the following in response to today’s state Board of Equalization study showing California could receive up to $122.6 billion in revenues if it levied an 8.4 percent sales tax on all services (which is the current average sales tax on goods):
“This landmark study confirms that California’s economy has undergone a revolution,” said Hertzberg, D-Van Nuys, chair of the Senate Committee on Governance and Finance, which requested the BOE study in conjunction with Hertzberg’s Senate Bill 8. “Eighty percent of California’s economy is now providing services, not goods, and most of these services are untaxed, making California more dependent on personal income taxes, which fluctuate year to year.
“It is that dependence on an unstable revenue source – not high taxes – that threatens our state’s economy.”
For further evidence, Hertzberg asked residents to “Look around you and examine how you spend your money. California’s economy has changed from one that had been dominated by making goods to today where 80 percent is producing services.”
Hertzberg said tax reform is needed because when times are bad, state income drops – forcing draconian cuts in many education, social and safety-net programs used by working families. California is one of 49 states that currently taxes at least some services, including more than two dozen services in the Golden State.
Unlike what’s shown in the BOE study, Hertzberg’s SB 8 would not tax education and health care services. Hertzberg’s measure also uses revenue from the sales tax to lower the personal income tax for most working families. The goal of SB 8 is to make them better off under SB 8 because any service taxes would be more than compensated by lower personal income taxes and because new revenues would also support education and local government, thus fostering upward mobility. The report indicates $57.3 billion General Fund revenues would be generated.
Jerome E. Horton, chairman of the state Board of Equalization, praised the report for being timely and demonstrating a thoughtful effort to find positive solutions to known challenges.
“Eliminating income tax is unwise, impractical and inconsistent with our economic structure,” Horton said. “However, a strategy that includes sales tax on services may provide a taxation balance that serves to stimulate job creation, capitalizes on innovation, and helps California business compete with the rest of the world—without destroying our environment.”
Hertzberg introduced SB 8 as his first bill after being sworn into the Senate last December in a bid to spur upward mobility for all California residents. He said his plan is to revitalize education funding, jumpstart job creation and foster improved state finances and business climate through a review of the state’s boom-and-bust tax structure.
“California has long been known as the land of opportunity, the republic of the future, but for too many of our residents the future is receding and inequality continues to rise,” said Hertzberg, a former Assembly Speaker who returned to public service after a 12-year hiatus in private business and as a public-policy leader.
This is a new philosophy of governance where there’s more relief for low-income wage earners. SB 8 would be funded by a restructured tax system to generate the needed cash and stabilize funding.
Hertzberg pointed to the following facts supporting the need to do more to help residents succeed: Since 1970, the poorest 20 percent of Californians have seen their household income grow by just 3.1 percent while the income of the richest 20 percent has climbed 74.6 percent.
Since 1987, 71.3 percent of all the gains generated by California’s economy have gone to the state’s wealthiest 10 percent. Moreover, today California accounts for three of the 10 American cities with the greatest disparities in wealth—San Francisco, Oakland, and Los Angeles.
Hertzberg emphasized that the initial goal of the Upward Mobility Act would be to explore problems with the current tax structure and discuss reform alternatives. Key provisions of his bill would expand the application of the sales and use tax law by imposing a tax on specified services; incentivize entrepreneurship and business creation by evaluating potential changes to the corporate tax law; and examine the impacts of a simpler personal income tax law.
Details about SB 8 will continue to unfold during the year; its first policy hearing has not yet been set.
Bob Hertzberg, chair of the Senate Committee on Governance and Finance, represents nearly 1 million San Fernando Valley residents of Senate District 18, which includes part of Burbank and the following communities in Los Angeles: Arleta, Granada Hills, Hansen Dam, Lake View Terrace, Mission Hills, North Hills, North Hollywood, part of Northridge, Pacoima, Panorama City, Sherman Oaks, Studio City, part of Sun Valley, Sylmar, Toluca Lake, Valley Glen, Valley Village, Van Nuys, the City of San Fernando and Universal City. See a district map HERE or at http://sd18.senate.ca.gov/district. After serving in the Assembly from 1996-2002, including two years as Speaker, Hertzberg built an international renewable energy business; invested in solar, wind and electric-car projects; and worked for structural changes in government through two civic groups: California Forward and the Think Long Committee of California. More HERE or at www.senate.ca.gov/hertzberg
MEDIA CONTACT: Ray Sotero
Sen. Bob Hertzberg, Senate District 18
Capitol Building, Room 4038
Sacramento, Calif. 95814
(916) 651-4018 office; 916 834-1128 cell