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Monday, February 7, 2011

Public Understanding of the Tax Structure

As he promised when he campaigned, Governor Brown should be calling for a vote before the end of June 2011 so the public can weigh in whether there should be a tax increase. In California, the temporary .25% increase in rates expired at the end of 2010 and the sales tax increase expires mid-2011. Continuing these is unlikely to be sufficient to balance the budget so there will be spending cuts and perhaps a look for other revenue sources, such as a oil severance tax. Governor Brown has also mentioned eliminating enterprise zone tax provisions and redevelopment agencies.

California's tax system is quite complicated. Can the public adequately determine whether taxes should be increased and if so, how? As I like to note - California's tax problems can't be solved with rate increases, the problems are in the base (see here). I like Dan Walters' op ed in the San Jose Mercury News on Thursday February 3 - "Public's tax ignorance a big hurdle for Brown." He offers a few examples of the low understanding of the fiscal picture. For example, a survey by the Public Policy Institute of California found that while most voters believe they have substantial knowledge of state and local government finances, only 16% knew that K-12 was the largest state expenditure.

How can one single person truly understand the amazing intricacies of California's fiscal system? Most people likely just view it as paying income, sales and property taxes. How many know they also pay a variety of excise taxes and vehicle taxes? How much of the corporate tax is passed through to them? Where do their property tax dollars go? How much of the sales tax goes to the local jurisdictions? How many know that there are 471 cities, 58 counties and over 3,000 special districts? How many people can trace tax dollars after the subventions, triple flips and backfills are taken care of? What is ERAF?

Michael Coleman, expert on local finances, with lots of information on his website to explain the odd route tax dollars flow to get to their ultimate use and the effect of the many propositions and laws that created this maze. Take a look at his presentation from January 2011 with Paul Navazio, Assistant City Manager, City of Davis - Financial Management 101: Financial Management and City Revenues.

So, what should the voters be asked? What public awareness campaigns should take place before then to give voters some chance of understanding the fiscal structures in California as well as principles of good tax policy so they can figure out where problem areas are?

What do you think?

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