The Washington-based Tax Foundation is an impeccable source of accurate information about state and local taxation, albeit one with a decidedly conservative tilt. It was a little odd, therefore, that Jerry Brown, the Democratic governor of one of the nation’s highest-taxing states, just received one of the foundation’s annual awards for “outstanding achievement in state tax reform.”
While the organization’s honorees are mostly Republicans, it honors Brown “for colorful vetoes of targeted tax breaks which have helped California maintain some semblance of a broad tax base and improved its fiscal position.
“Governor Brown consistently vetoed popular proposed tax breaks, saying legislators should instead work through the annual budget process and balance those wants with other priorities,” the foundation said. “California has more work to do on fiscal solvency and tax climate, but Governor Brown’s demand for thoughtfulness and process in creating new tax breaks should be emulated by his successors.”
The award is fairly well deserved, as far as it goes. Brown did persuade the Legislature to eliminate an “enterprise zone” tax break for business that never came close to living up to its promise, but survived for several decades. He also resisted most of the Legislature’s perpetual proposals to punch even more loopholes in the state’s tax code.
However, he also championed the expansion of a tax break for film producers who promised to shoot their movies in California, rather than take advantage of tax breaks in other states and nations. The tax credit was created by Brown’s predecessor, actor-turned-politician Arnold Schwarzenegger, reflecting the thrall that Hollywood holds over politicians, even though movie and television production is a tiny factor in the state’s $2.6 trillion a year economy.
“We find that about one-third of the film and television projects receiving incentives under this program would probably have been made in California anyway,” the Legislature’s budget analyst, Mac Taylor, said in one of his office’s periodic critiques of the loophole.
Moreover, Brown has been missing in action on comprehensive reform of California’s dangerously imbalanced and outdated tax system.
Schwarzenegger, at least, took a stab at reform. He and legislative leaders appointed a blue-ribbon commission, headed by businessman Gerry Parsky, to suggest improvements, particularly how the volatility in tax revenues could be reduced. That volatility means state and local budgets go through boom and bust cycles.
Despite some internal conflict, the commission did recommend reducing the state’s dependence on personal income taxes and extending the state sales tax to cover services. Its report, however, was quickly filed away without action.
While Brown has acknowledged the need for reform to create more revenue stability, he has also studiously refused to champion it. Implicitly, he has shied away because significant tax reform would be extraordinarily difficult, drawing flak from powerful economic interests, with no guarantee of success.
Most of those honored by the Tax Foundation this year, including Democratic Gov. Gina Raimondo of Rhode Island, took a big picture approach, while Brown played small ball.
Brown will bequeath to his successor a tax system that at best makes little sense in the 21st century and at worst could trigger a future fiscal meltdown