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Saturday, October 10, 2009

Info Hearings Held on Recommendations of 21st Century Economy Commission

On October 8 & 9, 2009, the CA Assembly Revenue & Taxation Committee held informational hearings on the final report approved by 9 of the 14 members of the CA Commission on the 21st Century Economy (COTCE). Several commissioners, including those who did not vote for the report, testified (see agendas). There was also testimony from some public interest groups.

I don't see that any transcript has been posted anywhere yet, but here are some links to observations of people or groups that are listed on the hearing agenda.
  • California Budget Project - here - this group does not favor the plan, calling it "fatally flawed" and finding that it shifts too much of the current tax burden from higher income individuals to low and middle income individuals. This group notes that the Business Net Receipts Tax (BNRT) will be paid directly by businesses that can deduct it in calculating their federal income tax, but the higher prices paid by consumers does not produce a deductible tax. Of course, today's sales tax does not produce a tax deduction for California consumers and neither does any of the corporate income tax passed along to consumers. The only taxes individuals can deduct on their federal return are state income taxes (unless they chose to instead deduct sales tax and for those in AMT, neither tax is deductible) and property taxes. There is some interesting data and observations in the CBP presentation.
  • California Tax Reform Association - here - I don't know if this is the exact testimony delivered on 10/8/09, but it is an earlier statement voicing opposition to the COTCE report. The concern is disproportionate tax relief to high income individuals. Concern is also expressed over many uncertainties of the operation and effect of the BNRT. There is a statement that the BNRT falls disproportionately on rental housing. I'm not sure of that. Certainly, rental income is subject to the BNRT and expenses paid to other businesses are deductible. Perhaps it is that there are not many expenses paid to other businesses. I haven't read through the many pages of statutory language for the BNRT, but fixed assets purchased by the landlord should be fully deductible when purchased which would reduce the BNRT.
  • California Chamber of Commerce - here - they expressed concern the day after the release of the COTCE report. “We must not rush into replacing our 70-year-old tax system with an unproven experiment that may fail to deliver the promised results."

Some observations:

  • While there is statutory language (lots of it) for enactment of the BNRT, it would be nice to see more explanatory language. That allows those not comfortable with deciphering statutory language to better understand the BNRT and for those comfortable deciphering it, to be able to verify it against what the COTCE expect the BNRT to do.
  • More explanation is needed from the 9 commissioners as to why they would want to replace a direct income tax with an indirect consumption tax. A personal income tax is transparent in showing what each income group pays. However, a tax that is paid directly by businesses but indirectly paid by consumers, investors and employees is not transparent. It is unlikely that the thousands of dollars of personal income tax reduction of high income individuals will be replaced with their "share" of the BNRT. This is because high income individuals do not consume all or most of their income while low income individuals do consume most of their income and some portion of the BNRT will be included in prices of many goods and services purchased if a BNRT is in effect.
  • Why was there no proposal for some type of carbon tax given California's aggressive plans to reduce greenhouse gas emissions? One example I've suggested before is to replace some part of the personal income tax (to reduce its volatility somewhat) with a sales tax on utility bills of individual consumers. There would be relief (either on the utility bill or via a refundable income tax credit) such that there would be no tax on a bill representing utility expense for a 1200 square foot home with 4 inhabitants. There could also be an increased gas excise tax.
  • I would like to see more study on the BNRT to answer the various questions mentioned in this blog and in many other places, such as the oft-mentioned letter from nine law and economics professors to the COTCE.

Please post comments - were you at the info hearings on October 8 and 9? if yes, what was your reaction? What should be the next step regarding the COTCE report? Other comments on CA tax reform?

1 comment:

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