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Surprise,surprise! State budget has new $1.1B hole

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POSTED October 10, 2009 2:27 a.m.
California needs a taxpayer revolt against spending on the same scale that Howard Jarvis and Paul Gann changed the property tax landscape with Proposition 13 back in 1978.

•As of Friday, there is now a $1.1 billion shortfall in revenue in the budget that was cobbled together just 10 weeks ago.

•With unemployment in California at a record 12.2 percent, the state on Nov. 1 has ordered employers to withhold 10 percent more in state tax from wage earners to Collect $1.7 billion in advance of what is due the state in the next fiscal year to help balance this fiscal year’s budget. It’s a permanent move that was designed to ease the state’s cash flow problem this year but will leave the state with a bigger hole next year.

•Families struggling to make ends meet are having their credit on state income per child whacked from $309 down to $99.

•Those making over $47,055 will enjoy a 0.25 percent increase in the state income tax rate in April.

Meanwhile, the state which can hustle at lightning speed to put in place “revenue enhancements” is moving with the speed of a snail that has suffered a massive stroke when it comes to implementing cutbacks in the state budget.

Couple their foot-dragging with a drop in actual revenue versus projections and you know what is going to happen in the coming months.

Making it all worse is the state continues to cannibalize local revenues cutting into day-to-day services that matter – police, fire, streets and such – so they can avoid ticking off the people they love to appease in the form of powerful state employee unions.

It is abundantly clear that the California Legislature is all talk when it comes to tax reform just like they were about property tax reform in the decade proceeding Proposition 13 that was conceived, drafted an imposed on the state by its citizens.

The Commission on the 21st Century Economy earlier this month unveiled recommendations for reforming the state’s tax structure. It is a complicated document that came with an executive summary. Of course, party animals on both sides of the aisle reacted to the executive summary with Democrats fearing it would end up reducing revenue and Republicans fearing it would increase revenue. So much for any thoughtful contemplation versus the obligatory 15-second sound bites that dictate public policy these days.

The next Gann and Jarvis could start by qualifying an imitative for the ballot that would put in place the following commission recommendations as outlined by Association Press:

• Personal Income Tax: Replace the state’s existing progressive income tax structure (10.55 percent for millionaires) with a flatter structure. The two rates would be 2.75 percent for individuals earning up to $28,000 a year or $56,000 for joint filers, and 6.5 percent for incomes above that amount.

The standard deduction would be $22,500 for individuals and $45,000 for joint filers. Deductions would be limited to mortgage interest, property taxes and charitable contributions.

•Sales and Use Tax
: The state’s portion of the sales and use tax would be phased out over five years by reducing it 1 percentage point each year. Local sales taxes would remain in effect.

•Corporate Tax: This business levy would be eliminated.

•Business Net Receipts Tax
: At the heart of the commission’s proposal would be a plan to replace the sales and corporate taxes with a business net receipts tax, to be imposed on all companies doing business in the state.

The tax would be calculated by subtracting a firm’s purchases from its gross receipts. The commission defines gross receipts as payments a business receives from all sources, such as the sale or exchange of property, the performance of its services or the use of its property or equipment. A yet-to-be-determined tax rate would be applied once the business’s purchases are subtracted from that total.

Commissioners have said the tax rate could be around 4 percent.

They say switching to such a model would capture service sectors that are currently not taxed, such as legal, engineering or accounting services.

• Rainy Day Fund: The panel recommends increasing the target amount the state sets asides in reserve, from 5 percent to 12.5 percent of the state’s general fund. The governor could tap the fund only when revenue is insufficient to provide spending at last year’s level, adjusted for population and inflation changes.

It may not be perfect but it is the best thing going for tax reform in California as Sacramento continues to watch the Golden State’s economy disappear into the economic quicksand they helped create.
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