The San Francisco Chronicle has an article today on the Democrats' budget plan with a significant tax change - "Experts praise state Dems' tax plan" (8/12/10). The plan includes increasing the personal income tax rate for all except the highest bracket and the vehicle license fee (VLF), and reducing the state sales tax rate from 6% to 3.5% (ignoring the local sales tax).
It sounds interesting. Our sales tax rate - almost 10% is too high and impedes consumption and business development in the state. But our personal income tax rate is also already high and we rely on this tax for about 50% of state revenues already.
I know it is difficult to make any good tax changes in times of budget crisis, but I would like to see an effort to start expanding the sales tax base to include more types of personal consumption - particularly that of high income individuals (entertainment, personal services and digital goods). The revenue can be used to reduce the sales tax rate and provide exemptions for businesses (such as for manufacturing and R&D equipment). The broadened base would make the sales tax more equitable, help local governments (who must rely on the state to define their sales tax base), and make the state more welcoming to businesses.
Also, a higher gasoline excise tax would be a good idea given the greenhouse gas emission reduction targets the state has.
I've got a few reports and short articles on California tax reform - here.
What do you think?
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