On November 18, 2009, the California Legislative Analyst's Office released a report - California's Fiscal Outlook: The 2010-11 Budget. The LAO projects an upcoming budget shortfall of about $21 billion.
In addition to more spending cuts, it makes sense to also consider this the time to address unnecessary spending that is buried in the tax law. For example, why should California continue to allow a deduction for mortgage interest on second homes and on home equity debt? Also, let's phase down the allowance of mortgage interest on debt greater than the median home price (which is under $500,000; the current debt limit is $1 million as used in federal law). There are others as well. I've written about this before - here.
Also, it is past time to broaden the sales tax base to tax more types of personal consumption. While we do have a budget shortfall, it would still be appropriate - both due to our already very high sales tax rate and because there is a lot of revenue potential in the currently untaxed consumption, to LOWER the sales tax rate at the same time. Good candidates for the initial phase of broadening the sales tax base would be to start taxing digital downloads by consumers (other states are already doing this including Wisconsin, Washington, Mississippi, New Jersey, Tennessee and a few others). Also, entertainment - concert, theater, and movie tickets would be appropriate.
These changes would not only help balance the budget, but would modernize the tax system and bring greater equity to it. California's fiscal system has a variety of problems. Continued shortfalls should be a wake up call to stop subsidizing million dollar mortgages and some other questionable tax expenditures, as well as to address an eroding and inequitable sales tax base that has led to a rate that is too high. Other changes are also needed, I just mention these few as starters.
What would you propose?
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