Taxing the Middle

The Commission on the 21st Century Economy, aka the “tax commission” will begin considering alternatives for restructuring California’s tax system in Los Angeles on Tuesday. The commission, which was appointed by the Governor, Assembly Speaker Karen Bass, and Senate Pro Tem Darrell Steinberg, has heard testimony since January and, after a delay due to the May election, will now begin work on what may or may not culminate as a set of recommendations.

One thing has become clear – the only thinly hidden agenda of the commission is to reduce taxes paid by the wealthiest Californians and, potentially, business and increase the share of the state’s taxes paid by those at the middle and lower end of the income distribution. The San Francisco Chronicle’s “PoliticsBlog” outlined Schwarzenegger Chief of Staff Susan Kennedy’s goals for the commission, “Asked what she’d like to see from the tax commission, Kennedy didn’t hesitate. ‘Flatness,’ she said. ‘Our revenue stream is way too progressive.’ But no matter how you slice it, she said, changes that come out of it may be seen as ‘a tax increase to the middle of the structure.’ ”

The three packages the Commission will consider in Los Angeles tomorrow would go a long way toward realizing Kennedy’s goal of a tax shift onto the state’s working families by lowering the state’s top personal income tax rates, limiting or eliminating the state’s corporate income tax, and creating new tax breaks for business. The “wild card” proposal? Creation of a business net receipts tax. While perhaps intriguing at first glance, policy experts, including Commission member Rick Pomp, argue that these taxes are “primarily a tax on consumers rather than on businesses.” As such, the net receipts tax proposal would replace a tax on corporate profits, which economists argue is largely paid by disproportionately higher-income shareholders, with a tax paid by consumers across the income distribution.

The Commission has not released details – such as proposed tax brackets – for the three packages that will be presented and there’s no time for public comment after the staff presentation of the alternatives. There’s clearly much more than can, should, and will be said on these proposals once we have the details.

— Jean Ross