The California Influencer Series

Tax haircuts and concerts – or the rich? Californians consider the options

The Influencer Series
The Influencer Series

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The California Influencers Series

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We asked California Influencers a question from a reader: 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? Here are their answers:

Antonia Hernandez, President and CEO of California Community Foundation

“Reform the tax laws. Five years ago, a group of civic leaders came close to consensus on a proposal to reform our tax code.”

Mike Madrid, Principal of Grassroots Lab

“Implement strict spending limits, place a cap on capital gains taxes and begin phasing in a service tax that generates revenue off of the emerging economy.”

Janet Napolitano, President of the University of California

“To do this would require a total redo of the state’s tax structure. Ideally, state revenues would be a balance of personal income tax, corporate and property tax and sales tax. With Prop. 13 anchoring property tax, such a balance is currently unachievable.”

Eric Bauman, Chair of the California Democratic Party

“It is time for us to move from our current regressive sales tax model to a broadened approach that includes taxing selected non-essential services—which will allow us to reduce the overall sales tax rate while still expanding our tax base. And we must fix the flaws in the commercial side of Prop. 13.”

Daniel Zingale, Senior Vice President of The California Endowment

“This was the argument for maximizing the rainy day fund, which we've done. But we need to get to the root of the problem. Income tax revenues depend on a handful of high earners because a handful of high earners are getting too much of the state's wealth and income. Meanwhile, low and mid-wage earners have seen negligible gains. The share of corporate income paid in state taxes has been falling for decades. The new federal tax law further concentrates wealth at the top. California Earned Income Tax Credit helps somewhat to even the field of opportunity. Reforming property/industrial taxes to reflect current market values would allow counties to do more. To even out the revenues, look for more ways to share the increases in income, economic opportunity and advantages with those being left behind.”

Angie Wei, Chief of Staff of California Labor Federation

“A sustainable tax system depends on a solid property tax system. We need to reform Prop. 13, including commercial property tax. We also need to modernize our tax base—sales tax needs to be updated."

Jim Boren, Executive Director of the Fresno State Institute for Media and Public Trust; and Former Executive Editor of The Fresno Bee

“California needs to flatten its tax structure so that it remains revenue-neutral and is based on all income earners paying their fair share of taxes. Those fortunate enough to be in the super high-earner category should still pay a larger share, but this formula shouldn’t be so distorted that swings in the economy have major impact on the flow of tax dollars to the state treasury.”

Tom Campbell, Professor of Law and Professor of Economics at Chapman University

“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 (some of whom, sadly, are candidates for office). A healthy society requires taxation to be broadly based. 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. Revenue from a sales tax fluctuates far less than the tax on capital gains. Also, state government ought to spend less. Revenue has increased over the last 10 years, but spending even more.”

Ron George, Former Chief Justice of the California Supreme Court

“A more substantial and stable revenue source, which would enable the state of California to better honor its obligations to meet educational and other basic needs, would be made available by modifying the severe restrictions imposed by Proposition 13 on the state’s taxing authority. At a minimum, a 'split roll' should be provided to ensure that large commercial enterprises do not receive the benefit of property tax limits that the voters’ initiative intended to confer upon individual taxpayers. The resulting increase in the proportion of state and local government revenue derived from the property tax would greatly reduce the cyclical swings in the state’s revenue that emanate from its excessive dependence on tax revenue generated by the ordinary income and capital gains received by high earners.”

Harmeet Dhillon, Republican National Committee, California, and Partner in Dhillon Law Group

“Simple—California needs to stop driving successful and middle-class people out of state. Californians are fleeing bad schools, crime, man-made drought, high taxes, business barriers and extremely high cost of living due to bad regulations. This will ensure that more taxpayers across income brackets stay and thrive in California.”

Rob Stutzman, Founder & President of Stutzman Public Affairs

“The only true solution is to flatten and broaden the personal income tax—virtually an impossible sell to voters.”

Manuel Pastor, Director of Program for Environmental and Regional Equity at the University of Southern California

“There are a number of venues being explored for more stable sources of revenues, including a sales tax on services and a split roll to tax commercial and industrial property at actual market values. 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 (California receives over half of the country’s venture capital), and, in polls conducted in the Silicon Valley, high-tech executives say they would be willing to pay more to secure better social services for others. So it’s a problem with regard to steady revenue streams, but let’s fix it the right way and for the right reasons.”

Madeleine Brand, Radio host with KCRW Los Angeles

“The obvious answer is to change the income tax rate —lower it on the high earners and raise it for the middle class. Most voters don't like that idea; neither does Gov. Jerry Brown and the Legislature. Taxes could also be raised on services—like concert ticket prices or haircuts. The rich pay for more services. But that wouldn't generate the same amount as income taxes on the wealthy. Sales taxes are already high and they’re regressive. And we’re seeing the pushback on the gas tax now. 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.”

Timothy White, Chancellor of the California State University

“To grow California’s tax base, I believe that we must create more higher-earning jobs and opportunities for social ascent. This will grow our middle class, strengthen our economy and add new revenues to the state’s coffers.

“Californians rich and poor want their tax dollars to go toward investments in the future of the Golden State. Public higher education is that investment.”

Bonnie Castillo, Executive Director of California Nurses Association

“Wealth and income inequality is one of the most critical problems facing our nation and state. In the 1950s era of economic growth, taxes were much higher on the upper income. Today the wealthiest 1 percent, who have disproportionately benefited from the economic recovery, own 40 percent of the national wealth, a dangerous threat to our democracy and the security of all Americans—and 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.”

Eloy Oakley, Chancellor of California Community Colleges

“The next governor will need to make changes to the revenue/tax structure of California. While Gov. Jerry Brown did much to mitigate the impact of boom and bust cycles through the Rainy Day Fund, the same structural problems remain in our tax system. Our leaders must take on this very thorny issue."

Rosalind Hudnell, Former Vice President of Human Resources at Intel Corp and Former Chair & President of Intel Foundation

“California does benefit from a critical mass of high earners which has also been impacted at times by volatility in the stock market impacting their earnings and the taxes they pay. Our state reaps the benefits and challenges with that fact. All roads to progress start from having more of our residents participating in our economy through increased wages from better jobs which come from competitive skills. The answer is to increase the denominator.”

David Townsend, Founder of TCT Public Affairs

“This is one that is way above my pay grade to offer a solution. But I do agree that it is a serious problem.”

Curt Pringle, Former Assembly Speaker, and Founder of Curt Pringle & Associates public relations

“Boom and bust cycles in California dramatically impact state revenues and state services. This fluctuation is directly tied to California's reliance on personal income tax paid by high-income earners. Even though progressive policies might want to tax high-income earners, when a state like California is generating over 68 percent of its entire budget from personal income tax and the overwhelming majority of that tax revenue is from the top 10 percent of income earners, our entire state's budget is built on sand, and every incoming recession washes away funding for state services.

“There are many ways to build a firmer foundation for the state. In 2009, the California Commission on the 21st Century Economy, of which I was a member, presented many ideas on how to reshuffle our state's tax structure. Those ideas included reducing the personal income tax rates and developing a 'business net receipts tax.' This BNRT would replace the state's general sales tax and would extend a tax more broadly than the current sales tax. Any structural tax change will affect people and businesses differently, and thus any change will generate opposition. But tackling this issue today, when revenues are strong, is the right thing to do.

“If the focus is on revenue neutrality, reducing one source of state budget revenue, like personal income tax, requires an increase in other sources of revenue.

“The Business Net Receipts Tax, which operates somewhat like a Value Added Tax, could be a new tax with revenues supplanting any reduction in revenues from personal income tax.

“Similarly, extending our current sales tax to services, could rebalance state revenues. But each of these changes would generate widespread opposition. But that opposition should not halt a discussion of this important topic by state leaders.”

Michele Siqueiros, President of Campaign for College Opportunity

“I'm not sure state leaders or voters really want to address this one. 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.”

Kim Belshé, Executive Director of First 5 LA

“A stable, prosperous future depends on our investments in our kids’ well-being today. Our goal should be to create as many high-income earners as possible through disciplined budget and policy decisions that give California’s young children the best start. That means supporting new parents in their child’s earliest moments through family-strengthening home visiting programs, building upon this year’s recently enacted budget. And, it means supporting young children’s development of critical thinking and problem-solving skills that will help them thrive as adults in a changing economy. Research shows that investing in children delivers a phenomenal return through strong outcomes in education, health, social behaviors and workforce readiness for the high-paying jobs of tomorrow. High earners are not simply born; in California, we build our economic strength through our kids and we launch them to succeed in school and life.”

Jon Coupal, President of Howard Jarvis Taxpayers Association

“Revenue volatility is, in large part, a function of the economy. 'Spending volatility' is a function of political discipline, something lacking in Sacramento. 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. This leads to a false choice between raising somebody’s taxes and raising everybody’s taxes. How is [it] that other states provide better and more comprehensive public services with such lower tax burdens? Rather than resort to raising taxes as the default first option, other states are able to prioritize programs, achieve efficiencies and conduct meaningful oversight of spending. That's the answer for the Golden State.”

Allan Zaremberg, President and CEO of the California Chamber of Commerce

“Volatility is due to an overreliance on income taxes on the high-wage earners and that could only be changed by a constitutional amendment reducing taxes on the wealthy and broadening the base to increase taxes on others. Because that is unlikely to happen, the rainy day reserve is crucial to withstanding an inevitable decline in revenues.”

Kristin Olsen, Former minority leader in the California Assembly, and Stanislaus County Supervisor

“Republicans and Democrats must work together to flatten and broaden the tax code so that more people pay taxes and at lower rates overall. 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.”

Dorothy Rothrock, President of California Manufacturers & Technology Association

“Revenue volatility from our reliance on taxpayers who may owe less in a recession or move to escape high taxes is a problem that can be partly solved by keeping state spending low and building a surplus to cover budget shortfalls. Finding more stable revenue sources to replace the high-income tax burden is a challenge in California because there are so many taxes and fees already imposed on the citizenry.”

Chet Hewitt, President and CEO of Sierra Health Foundation

“This is a really tough question from both a political and moral perspective. With regard to our dependence on income taxes, some argue that we should position tax rates so that everyone contributes something with high-income earners paying more, of course. This may sound fair and reasonable at first, but when you look at where and how income and wealth is concentrated in California, and the effects our high cost of living has on lower income individuals, the idea loses its seemingly simplistic and justifiable appeal. To more equitably spread the burden of paying taxes, we need to first more equitably spread income and wealth. I’d also add in property tax reform, the dreaded rethinking of Prop. 13 which is needed to close loopholes which impact tax receipts. Both of these ideas are admittedly complex and thorny issues, but the challenge isn’t that we can’t figure out how to address them fairly, it’s that we don’t have the political courage or moral leadership to take them on.

“Finally, I don’t think spending volatility has been an issue the past seven years as evidenced by our current governor’s budget proposals and tight control of general fund resources.”

Donna Lucas, CEO and President of Lucas Public Affairs

“We need to broaden the tax base. California’s tax system was created in 1930s based on a manufacturing economy. It's time to update the system to reflect our current economy.”

John A. Pérez, Former Speaker of the California Assembly

“One way in which the state has already addressed this issue is through the rainy day legislation that I authored. The rainy day fund takes capital gains that spike above a normal threshold and puts that money into a rainy day fund. This helps guard against increases in spending and helps pay down debt. If voters would like to move away from this system then they would have to vote to tax themselves, either through increased sales tax or income tax, both of which would be unpopular, especially given the new federal tax law that lowers the amount of deductions Californians can claim.”

Jonathan Keller, President of California Family Council

“The famous 'Laffer Curve' will certainly apply to California. While we should avoid policies that are exceptionally regressive, our state must also eliminate the growing problem of free ridership. Every Californian should have a stake in our states financial future.”

Catherine Lew, Principal and Co-Founder of The Lew Edwards Group

“Exercise POLITICAL COURAGE! Do the tough work necessary to reform Proposition 13.”

Pete Wilson, Governor of California, 1991-1999

“The present structure where the top one or twp percent pay more than 50 percent of the state’s tax revenues makes the state dangerously dependent in times of economic bonanza when the state has spent increases in revenue that inevitably, subsequently drop in bad economic times causing the state to face a deficit. The governor and the Legislature must exercise much greater discipline in spending the taxpayer’s money. I know because I was faced with having to do so and did it. Use discipline to limit entitlement programs.”

Bill Burton, Managing Director of SKDKnickerbocker in Los Angeles

“The people who benefit the most from our roaring economy should be responsible for the largest part of the state's budget. But we need to be prudent about the fact that President Donald Trump's economy is on a path to recession.”

Jim Wunderman, President and CEO of Bay Area Council

“Relying on high-income earners to support the state is a dangerous strategy that will blow up in our faces when the economy inevitably sours. Making sure we’re not tying new ongoing spending to this volatile revenue is one way to mitigate the risks, and Gov. Jerry Brown has worked hard to do that and build a healthy rainy day reserve fund. But the next governor and the Legislature need to look seriously at fixing the deeper flaws in our tax system to ensure greater stability, fairness and sustainability.”