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Thursday, December 1, 2011

Governor Brown and possible rate increse proposal

The Mercury News reports that on Friday (12/2/11), Governor Brown may propose sales and income tax rate increases to address continuing budget problems. The income tax rate increase would likely be for individuals with over $250,000 of income. ["Gov. Jerry Brown to add income tax increases to budget plan" by Harmon, 12/1/11]

Expected budget shortfalls are $4 billion for the current year and $13 billion for next year.

These are both unfortunate proposals. Some problems:
  • Our sales tax rate is already too high relative to other states and for meeting the equity principle. The base should be broadened rather than increase the rate.
  • Our personal income tax is volatile. That problem is exacerbated with even higher rates.

There are other solutions:

  • Broaden the sales tax base to include digital goods and services purchased by consumers (not by businesses) (exclude non-elective medical services)
  • Enact an oil severance tax.
  • Increase the excise tax on gasoline.
  • Move to only having a single sales factor apportionment formula.
  • Reduce tax expenditures, such as the interest deduction for a debt on a second home or a mortgage greater than $500,000; phase-in the changes.

What do you think?

1 comment:

Randy Eickhoff, CPA said...

I think any tax increases in the state of California are wrong. When you combine our state income tax, sales and use tax and state gasoline taxes, we are one of the most taxed states in the country.
Why don't I hear more focus on finding ways to cut costs?
If the state were truly operating in the best interests of the people of California, our elected officials would be looking at ways to reduce burden rather than add to it.
Raising any taxes whether they be for individuals or businesses will continue to erode the business climate and force companies to leave for lower taxes and cheaper labor costs. More businesses operating here means more jobs and taxes to the state. Is it really that difficult to see?