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Red-Blue Clash Emerges in 21st Century Commission

Jul13

fred keeley_0102The Commission on the 21st Century Economy, headed by Schwarzenegger pal and Republican bigwig Gerald Parsky, has been developing a plan to overhaul California’s tax system that includes flattening personal income tax rates and broadening the sales tax, as loyal Calbuzz readers know.

Instead of achieving the consensus sought by Parsky,  however, the commission faces an ideological (and factual) conflict at its meeting in San Francisco on Thursday, as liberal members are now proposing an alternative plan. Their draft proposal, among other things, rejects as too regressive a flat income tax system, and also suggests amendments to Proposition 13.

The commission’s Blue Wing (as in blue state/red state) is questioning underlying assumptions of the Red Wing flat-taxers, like: 1) Is California actually unfriendly to business? 2) Are jobs and businesses actually fleeing California? 3) Does improving competitiveness demand elimination of the progressive tax system and the sales tax?

The introduction of the Blue Plan has already raised partisan political hackles between appointees of the Republican governor and those of Democratic legislative leaders.

Former GOP Assembly Speaker Curt Pringle, in a letter obtained by Calbuzz, accused former Democratic Assemblyman Fred Keeley, one of the leaders of the liberal wing of  “crafting a plan in private” and end running commission procedures with “an 11th hour presentation.”

“Why shouldn’t every commissioner gather their respective philosophical mates and assemble and submit competing plans in the weeks and even the months ahead,” Pringle said.

But Keeley, now the Treasurer of Santa Cruz County, insisted he has honored commission procedures, and has been raising similar issues in meetings since March.

boskinThe conservative Red Wing, led by Parsky and Michael Boskin of Stanford, previously had hoped that their plan was on track for recommendations to flatten and simplify the income tax, eliminate the business tax and create a net receipts tax, like a European value added tax, to replace the sales tax.

But after the elements of that idea – which became known as the Red Plan — were well-publicized and thoroughly examined by the commission’s staff, the liberal wing on the commission, led by Keeley and Christopher Edley, dean of the Boalt Hall School of Law, came forth with an alternate Blue Plan.

Still in draft form, their plan would:
– Require that all state revenues that are 5% or higher than Department of Finance estimates be placed in a rainy day reserve fund.
– Make no change to personal income taxes, but reallocate capital gains tax revenue, with one-third going to the General Fund; one-third to debt and retirement fund payments; and one-third to the reserve fund
– Reduce the sales tax by 2% and expand it to cover, not just goods, but also a wide variety of services.
– Reduce the rate of the corporations tax, but broaden its base by restricting deductions on business losses and rolling back tax breaks for companies that operate outside California
– Subject the controversial business net receipts, or value-added, tax to further study.
– Adopt a pollution surtax on carbon-based fuels
– Amend Prop. 13 elements of the California Constitution to allow local governments (cities and counties) to increase existing local sales tax by up to 1.50% (or any .25% fraction thereof) by a majority vote of its electorate, instead of the currently required two-thirds,.
– Amend Prop. 13 to change the non-residential property tax rate from 1% to 1.50%, effective upon change of ownership, essentially establishing a “split roll” assessment system.

The Blues also would require display of all tax expenditures – special tax breaks, credits, deductions and exemptions – in the governor’s budget, and require them to sunset in no more than five years.

At this Thursday’s meeting at UCSF, the Blue Wing will ask that their proposals be given the same thorough analytical treatment that the Red Wing proposals have received and then be considered at the July 22nd meeting at UCLA.

The Blue Wing rebellion was first reported by Dan Walters of the Sac B-, who suggested the commission is headed for deadlock. That’s certainly possible, given the stark differences in world view commissioners have, but Keeley, for one, isn’t so sure.

He believes the commission can come up with a compromise, Purple Plan that combines elements of the two approaches.

It wouldn’t include a flat tax on income, but it might mitigate some of the brackets and could easily address capital gains. And while it might not replace the sales tax with a net receipts tax (which Michigan has had trouble predicting), it might lower the sales tax rate and broaden its application to services, as many other states have done.

“It depends how deeply people want to hold onto their ideology versus producing a game-changing product,” Keeley said.


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There are 4 comments for this post

  1. avatar pdperry says:

    Reeps want to simplify taxes.

    Dems want to complicate them (so as to redistribute them).

    What’s not to understand?

  2. avatar tegrat says:

    Reeps want to eliminate all taxes.
    Dems, being of sound mind, realize that social contracts are the most efficient way to fund many things, including healthcare, highways, public sanitation, parks and forests, firefighters, the military, the police, air quality, the list goes on and on, and a reasonable progressive tax is the best way to do this.
    What’s not to understand?

  3. avatar Andy says:

    I thought their task was to focus on creating a new, more stable revenue system…proposals that lock the money into certain spending categories, such as debt retirement or building state reserves, seem to be beyond that.

  4. avatar jskdn says:

    Beware of a compromise that increases overall amount of tax revenue taken out of the pockets of Californians, the goal of these liberals, while reducing share of the taxes paid by the rich, a goal of these conservatives. While neither side would choose the others preference, if a they can get what they want by screwing a third party, the majority of Californians, then that might just be acceptable to them. It’s the old story of two wolves and a sheep voting on what to have for dinner. I think “reform” ought to be revenue neutral and designed to remove unfairness in horizontal equity, much like the 1986 federal tax reform. This seems more like yet one more front for serving special interests.

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