Dan Schnur, a veteran analyst and longtime participant in California politics, is director of the California Influencers series for The Sacramento Bee and McClatchy.
California relies heavily on the rich to run its government. That means the state does well when the wealthy are doing well, and risks losing billions when they are not.
Taxing the rest of us more, not a politically popular idea, would put California’s budget on a more stable footing.
So a Sacramento Bee reader raised the issue through Your Voice, the online tool capturing suggestions for this election-year conversation: “What can be done to reduce the state budget's dependence on the income of a handful of high earners and remove the spending volatility?”
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The Bee’s California Influencers, a group of the state’s most respected public policy, politics and government experts, tackled the topic.
Many acknowledged that flattening the tax base would reduce its volatility, but agreed it was a political non-starter. Others suggested broadening the sales tax to cover services like tax preparation, hair styling, and personal trainers.
Some who lean left called for changes in Proposition 13 to bring in more property revenue. Conservatives stressed the need to reduce spending. Many lauded Gov. Jerry Brown’s rainy day fund as a way to guard against an economic downturn.
“The obvious answer is to change the income tax rate -- lower it on the high earners and raise it for the middle class,” said Los Angeles radio host Madeleine Brand “(But m)ost voters don't like that idea; neither does Gov. Jerry Brown and the Legislature.…So it looks like we’ll be stuck with the volatility. The best way to cushion the blow during the down periods is to save a lot during the up times, which is what Gov. Brown has been preaching forever.”
“The top one percent income earners in California pay 48 percent of the state's income tax. That is more than a "fair share" in anyone’s view—except the most wild redistributionists,“ argued former Congressman Tom Campbell, now a professor of Law and Economics at Chapman University.
“A healthy society requires taxation to be broadly based," he said. "A sales tax, exempting food and other necessities, makes us all pay for government, inducing citizens to ask whether we need a government program, rather than whether it would be desirable if someone else pays for it.”
Other Influencers sharply disagreed with the premise of the reader’s question.
“Wealth and income inequality is one of the most critical problems facing our nation and state…the wealthiest 1 percent, who have disproportionately benefited from the economic recovery, own 40 percent of the national wealth…” argued Bonnie Castillo, executive director of the California Nurses Association.
“…The tax cut pushed through Congress that almost entirely benefits the super rich and big corporations only exacerbates the gap. California should continue to require the wealthiest among us to contribute to the societal common good.”
Manuel Pastor, Director of USC’s Program for Environmental and Regional Equity, pointed specifically to a sales tax on services and reforming Proposition 13 to allow for higher taxes on commercial property as possible changes.
“But it's important to not lose the progressivity in the tax system: it’s fair, it doesn't seem to be chasing away investment… So it’s a problem with regard to steady revenue streams, but let’s fix it the right way and for the right reasons.”
Basic philosophical differences among the Influencers underscored the political challenge of making any change.
“Revenue volatility is, in large part, a function of the economy. ‘Spending volatility’ is a function of political discipline, something lacking in Sacramento,” said Jon Coupal, president of the Howard Jarvis Taxpayers Association. “It's wrong to assume that a year with high revenues is ‘normal,’ and every other year is plagued by ‘spending volatility’ that can only be fixed with higher taxes… . (O)ther states are able to prioritize programs, achieve efficiencies and conduct meaningful oversight of spending. That's the answer for the Golden State.”
Some Influencers tried to identify a middle path.
“Republicans and Democrats must work together to flatten and broaden the tax code so that more people pay taxes and at lower rates overall,” said former California Assembly Republican leader Kristin Olsen, now a Stanislaus County supervisor. “It will take courage from both political parties, but it is the only way to reduce California's revenue volatility and reduce the need for large tax hikes and deep spending cuts during times of economic recession.”
Michele Siqueiros, President of the Campaign for College Opportunity, expressed doubt about whether that's possible.
"I'm not sure state leaders or voters really want to address this one,” Siqueiros said.
“Special interest groups continue to put forward initiatives to fund various priorities by taxing the rich, these win generally easy approval by voters — while policymakers generally avoid voting on raising taxes legislatively because they don’t want to lose their next election.”