Quantcast

Archive for the ‘Gerald Parsky’ Category



Red-Blue Clash Emerges in 21st Century Commission

Monday, July 13th, 2009

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.

What’s Next for the 21st Century (Tax) Commission

Thursday, June 18th, 2009

weedwhackerUpdated with new info from the California Finance Department.

The blue-ribbon commission rewriting California’s tax code moved ahead on a policy framework Tuesday – but the nut-cutting politics are still to come.

As Calbuzz forecast in eye-glazing detail on Monday, the California Commission on the 21st Century Economy is focusing on a new, broad-based “business net receipts tax” as the centerpiece of its proposed revision of the state’s creaky tax code.

The commission included the tax as part of one overall outline for tax reform. In advance of their next – and final – meeting on July 16, the panel instructed staff members to flesh out this broad strokes outline into a full, detailed proposal, complete with economic forecasts and models that show who pays how much under the proposed new tax structure. Staff also will prepare a look at a less radical option.

That’s when the fun will start.

Ostensibly, the commission has two basic, essentially mechanical, goals in their re-do of the tax system: 1) evening out tax collections from year-to-year with a revenue stream that is less volatile and more predictable than the current spike-and-trough system, which makes long-range fiscal planning a fool’s errand; 2) making changes that are “revenue neutral,” i.e. ensure that the new system doesn’t generate a big tax increase or decrease.

Inevitably, however, any change to the tax system results in winners and losers, and debating that inherently political issue will likely be the focus of the economic debate when the commission meets next. Chairman and Arnold ally Gerald Parsky has made clear he wants the ideologically diverse group to reach consensus on a final proposal, in order to deliver a package to the governor that is politically palatable to both parties in the Legislature.

The first package to be considered  approved yesterday has these key elements:

– Flattening the progressive, steeply-stepped state income tax rate system to a structure with essentially one rate of about six percent.

– Eliminating the state sales tax (local sales tax levies that have been approved for special purposes like transportation would remain in effect).

– Eliminating the corporation tax.

– Imposing the business receipts tax. It would be assessed on nearly every business in the state as a percentage of its gross revenue – minus the cost of goods and services that it purchases from other companies.

– Charging a “carbon tax” on gasoline, diesel and jet fuel, calculated at the refinery at $20 per ton of carbon emissions. This would amount to about 18 cents-per-gallon of gas.

The second scenario would flatten the income tax structure, but not include the receipts tax.

As a political matter, there are at least three crucial issues that will underlie all the green eyeshade talk in the devil-in-the-details debate when the commission meets again:

** How regressive will the new system be? It seems clear that flattening income tax rates will redistribute some of the state tax burden away from the very wealthy and towards the middle class. In making its final recommendations, however, commissioners can make adjustments in this area – by increasing the income level at which people pay zero tax, for example, or by directing some carbon tax revenue to offset an increase in the earned income tax credit – as part of its effort to calibrate a tax calculus that will sell politically.

** How revenue neutral will it be? Although the commission is charged with designing a system that does not raise taxes, the net receipts tax, with its application to more businesses than the sales tax, plainly carries with it the possibility of expanding the base of state tax collections, thereby increasing general fund revenues in future years.

** How will it play with the Legislature? The answers to the first questions will largely determine whether the commission’s proposal will attract the kind of bipartisan support Schwarzenegger hopes to win. This means that Republicans must feel they’re not voting for a tax increase in disguise, while Democrats feel assured that over time the new structure will produce enough revenue to pay for their favored education, welfare and other programs.

As we reported earlier, Schwarzenegger would like the commission to deliver a report that can be quickly transformed into a clean bill for introduction and swift action in the Legislature. He is hoping to win support of the legislative leadership on the policy merits, in order to gain the political backing to force an up-or-down vote on the package in the Legislature.

Given the current toxic climate in Sacramento, passing major tax legislation would be an impressive victory, and give Arnold a second major accomplishment – after voter approval of the Prop. 11 reapportionment reform last fall – to use in pushing back against the widespread perception that his governorship has been a failure.

– By Jerry Roberts and Phil Trounstine

The Budget News That Really Matters

Monday, June 15th, 2009

tax-calculatorThis week’s coverage of the budget mess will surely focus on the wars of words and heavy breathing arising from Sacramento committee hearings and press conferences – but the most far-reaching California political news will unfold at UCLA’s De Neve Plaza.

That’s where the Commission on the 21st Century Economy will convene at 9 a.m. Tuesday to hear expert testimony about the “business net receipts tax,” a wonky notion that’s about to bust out of weed-whacking obscurity to take center stage in the most important political debate of 2009.

parsky

The commission – popularly known as the “Parsky Commission” after its chairman and Arnold go-to-GOP-guy Gerald Parsky – is a few weeks away from sending the governor its recommendations for retooling California’s clunky tax system. The tax structure is a vestige of Industrial Era policy-making that, as much as any single part of Sacramento’s broken governance system, is responsible for the endless and tiresome Hatfield-McCoy debates over the state’s tangled and troubled finances.

In a rare, and apparently random, moment of rationality and comity, Arnold and lefty Speaker Karen Bass got together a few months ago and appointed the group to figure out how to restructure state tax policy to avoid the boom-and-bust revenue cycles that lead Capitol denizens to panhandle one year and spend like inebriated seamen the next.

While Capitol D’s and R’s engage in yet another budget food fight with all the intelligence and wit of a Lite Beer commercial – “Tastes Great!” “Less Filling!” – some possible solutions to address the state’s long-running budget woe are hiding in plain sight, as framework proposals developed by the commission.

Calbuzz sources say that what the governor wants from the group – and what it’s likely to deliver – is a package of tax changes that raise more revenue – most likely through the aforementioned business receipts tax or a broader but reduced sales tax – and simultaneously lower other tax rates – like income and capital gains.

The political play is to produce a tax reform bill so clean it can be introduced in both houses with assurances no one will be allowed to bog it down with amendments.  Democrats will be able to avoid drastic program cuts and Republicans can claim they’ve cut taxes.  The bill breezes through both houses on an up-or-down vote and bada bing it gets signed by Arnold and everybody goes to dinner.  No muss, no fuss, no partisan fingerprints.

The commission has already assembled three basic packages, with three elements common to all: a) simplifying, flattening and reducing income tax rates; b) cutting business taxes; c) transforming the sales tax into a business net receipts tax.

The third item is the key to the whole deal. The tax, which has been put into effect in Michigan, Ohio and Texas in recent years, is similar to the “value added” tax widely used in Europe and elsewhere.

Basically, the net receipts tax would be paid by every business in the state as a percentage of its gross revenue – minus the cost of goods and services that it purchases from other companies.  Although consumers would not pay the tax directly, as they do at the register with sales tax, they would pay more to purchase goods and services because businesses would roll the tax, along with other costs, into its pricing.

The state would collect the tax on a “unitary” basis, meaning companies that operate both inside and outside of California would be assessed on a portion of their total sales volumes, not just the business they do within the state. Also, the tax would be levied on all types of business – not only on goods, but also on services, like doctors, lawyers and accountants, for example.

Here is an example of how the tax would work, as described by the California Manufacturing and Technology Association:

“The standard way to implement a NRT is to say a business owes some percentage on the price of the product minus all taxes previously paid on the goods. If NRT rates were 10 percent, a computer manufacturer would pay 10 percent of the $50 per unit price ($5) minus taxes previously paid by the semiconductor, software and peripheral manufacturers (say $2). In this example, the computer manufacturer would have a $3 tax liability…

“(The tax) is different from the conventional system of sales tax, because (it) is charged at every stage of value addition – whereas sales tax is imposed on the final value of a transaction only.”

In all three packages being considered by the commission, the receipts tax is the big revenue driver, unlike the present system, with its reliance on income and sales levies:

Package 1
Uniform personal income tax
* 6% rate – no exemption amount, no deductions, no credits
* 6% rate — $5k/person exemption amount, with certain deductions
Eliminate corporation tax
Eliminate state sales tax
Business net receipts tax

Package 2
Simplified personal income tax
* Three brackets, rates of 0%, 4%, 7% — current credits and deductions
Investment tax credit
Reduce corporation tax rate to 7%
Business net receipts tax

Package 3
Simplified personal income tax
* Three brackets, rates of 0%, 4%, 7% — $5k/person exemption amount, deductions for mortgage interest, charitable, property taxes
Eliminate state sales tax on business investment purchases
Reduce corporation tax rate to 7%
Reduce sales and use tax by 1%
Business net receipts tax

There are two other wild card factors still on the table: a possible 18 cent-a-gallon “carbon tax” on gas, diesel and jet fuel and cuts in capital gains rates, of between 1 and 5 percent.

None of this is a done deal, of course.

Getting a consensus recommendation from the commission, which includes conservatives like former Reagan economic adviser Michael Boskin and liberals like Santa Cruz County Treasurer Fred Keeley is by no means guaranteed. Even if commissioners do agree, their proposal will be fly-specked by lefty groups who will dislike elements that are not progressive, and industry groups, who will push for business-friendly changes.

As a political matter, forcing an up-or-down vote on a package in the Legislature would address what-about-me objections from all quarters, in the same way as the prohibition on amendments to congressional legislation produced by the military base closure commission in the 1990s finally solved that intractable problem. (Or like a Pete Wilson-Willie Brown deal from days of yore in Sacramento.)

After all, the impending bankruptcy of state government should be sufficient to show players at every point of the political spectrum not only that sweeping change is needed, but also that everyone will have to compromise to keep California from sinking into the 9th Circle of Hell.

For you herbivores,  Carl Joseph of the Franchise Tax Board has produced a deep-in-the-weeds analysis of the business receipts tax here.

– By Jerry Roberts and Phil Trounstine