Search This Blog

Thursday, November 24, 2011

Think Long Committee Ideas for Improving California

"The Think Long Committee for California aims to offer a comprehensive approach for repairing and renovating California's broken system of governance while proposing policies and institutions vital for the state's long term future." That all sounds good!

The Think Long Committee for California of the Nicholas Berggruen Institute released a report this week that explains many of California's problems, such as outdated and decayed infrastructure and finance system. The goal of the project leading to the report was to create an "integrated set of proposals" t0 "update and modernize the state’s broken system of governance."

The multi-faceted proposal is described as having three key components:

  1. Empowering local governments by creating a structure that enables them to make and carry out decisions

  2. An independent citizen watchdog organization to counter short-term thinking of elected officials and too much focus on special interests

  3. A modernized tax system with broader bases and lower rates for most taxes

The tax proposals include lowering rates of the personal and corporate income tax as well as the sales tax. The sales tax would be expanded to include services. Multistate income would be apportioned using a mandatory single sales factor

PIT rates would be 0 to 8.5% (including the mental health tax imposed on individuals with income greater than $1 million). The only deductions would be a larger standard deduction and specified itemized deductions (mortgage interest, property taxes, charitable contributions and R&D). Most credits would be eliminated.

The corporate rate would be lowered to 7%.

The homeowner's property tax exemption (currently $7,000) would be doubled with a similar change to the renter's credit.

There is mention of the need to generate revenue to address deficits

The suggested sales tax rate on services would be 5% but 4.5 % on goods. Low-income taxpayers would receive a sales tax rebate.

The structure would enable additional revenues to be collected to reduce current deficits.


  • It is great to recognize the need to move California's tax system into the 21st century.

  • Lowering rates and broadening bases is a good way to better enable a tax system to meet principles of good tax policy such as simplicity and neutrality.

  • Why not further cut backs to itemized deductions? For example, there is no reason for either the federal government or the State of California to subsidize financing of an individual's vacation home. And, the $1 million debt limit should be reduced in recognition that the median home price is far less than that.

  • Will the sales tax also be extended to digital goods? (it should be)

  • Will the expanded sales tax base not apply to business purchases? (these should be exempt for businesses)

  • A 5% sales tax rate on services and 4.5% rate on goods will bring unnecessary complexity to a system and increase the need for audits. For example, it is not always easy to distinguish a service from a good. Also, there are many businesses providing both. For example, an auto repair shop would be motivated to increase the markup on the parts and charge less for the services in order to reduce sales tax owed by customers.

  • A doubling of the homeowner's exemption results in a $70 property tax reduction for homeowners ($7,000 x 1% property tax rate). It is probably not worth the change and homeowners are not, to my knowledge, calling for an increased exemption (I'm sure most homeowners don't even know about it).

  • Increased renter's credit - how does this tie to the sales tax rebate? Are both needed?

  • Will the sales tax rebate be refundable ? (it should be)

  • Why not also increase the gasoline excise tax to help pay for improving road infrastructure and to recognize that California as ambitious greenhouse gas emission reduction targets?

I think this is all a positive step for improving California's budget, financial and infrastructure weaknesses. The tax proposals are a good start and the focus on broader base with lower rates should make for a much better tax system.

What do you think?

No comments: