It’s Time For a State-Wide Tax Convention

Perhaps the moment has come to convene a Tax Convention in Sacramento to address the chronic dysfunction of a system in California which is largely attuned to the vagaries of ballot measure tax gimmicks and emergency responses as a basis for administering government.

The one constant for running government at any level regardless of size, population mix, political coloration, current leadership or future goals is sound financial machinery and a set of tax rules that can help ensure highest quality performance during good times and bad.

When these rules can be changed at the whim of a sufficient number of petition signers backed by a few powerful funders and their special interest allies, or by a legislative majority bowing to the prevailing political winds, we are inviting dissension and instability.

Sorting out the needs and priorities that matter most to the state’s citizenry gets expression on Election Day. Entrusting that California has the wherewithal to get all the things it wants or forsaking those we cannot afford is the province of the governor and the legislature.

It begins with the need to raise money and lots of it, which every state is empowered to do through its taxing powers. The challenge lies in how those powers are carried out and to what ends.

Most importantly it means taking a hard look at the mechanisms California has at its disposal, if and how well they are performing, and whether our tax policies are adequate to meet the demands of a growing and diverse population even during a period of economic recovery.

These are complicated questions with no easy answers that require more than dubious ballot box solutions and weather vane budget projections.

Without enough revenue little gets down and when spending exceeds it which is often the case, economic disparities are inevitable and factionalism replaces solutions.

At the moment California is enjoying a bit of prosperity after years of retrenchment when the deficits reached $20 billion prior to Jerry Brown’s re-assumption of the governorship.

But as any sensible politician or economist knows, the good times will not last forever and if long-term structural reforms are not made, we can return quickly to the same trough.

California is a vulnerable boom or bust state which puts excessive reliance on personal income taxes that result in massive pendulum swings that can go downward fast when stock portfolios take a big dip. Although high net worth earners are only tiny percentage of the overall population, their impacts are out-sized.

Of course balancing their losses by raising taxes on the middle and lower classes carries risks few lawmakers want. This invites discussion about taxable alternatives (internet sales, legal services, corporate bonuses, gas and energy) to name just a few, which is already inspiring intense debate.

This economic roller coaster encourages overly rosy pictures during times of prosperity or doomsday scenarios when conditions turn sour.

Much like climate changes, these cycles are frequently unpredictable and involve forces that are frequently uncontrollable. However unlike the weather, rules can be devised which would make such wild gyrations less likely or at least minimize their effects—providing there are basic agreements as to when and how they can be employed.

Under current practices we wait for emergencies such as a major drought, an earthquake or some other catastrophic event to trigger public response before we take decisive actions.

Or in times of surplus as we are now experiencing, the fight is over whether to spend or save with doctrinaire anti-tax advocates on one side and free-wheeling spenders on the other.

Without any hard rules to go by, actions generally come in the form of ballot measures either to curb taxes (Proposition 13) or increase them (Proposition 30) which draw support or opposition depending upon their political expediency.

Prop 13 which helped both residential and commercial property owners and depleted community coffers for funding vital services has been under attack from practically the first day it was adopted.  Today, it is so wildly popular as to make it politically untouchable.

Prop 30, designed to help the state out of the recession through a quarter cent sales tax due to expire in 2016 and higher taxes on incomes exceeding $500,000 until 2019 will almost certainly face trouble whether efforts are made either to renew or end them as Brown has pledged.

To his credit, State Sen. Bob Hertzberg, D-Van Nuys, has introduced a bill (SB8) calling for an overhaul of California’s tax system. How far it will get is unknown, but it is not enough.

These and many other tax-related issues deserve serious inquiry and resolution.

Governor Brown should bring together a thoroughly bi-partisan group of the best minds in the state across a multi-disciplinary spectrum to examine an antiquated tax system and make recommendations that both the legislature and voters would support.

Other bi-partisan tax study groups precede it, but none had the necessary steerage and clout to finish the job. If Brown is interested in legacy-building, this would rank high.

Richard Rubin writes about political issues and is President of a Public Affairs Management Firm. He also teaches courses on the Presidential & Congressional Elections at the University of San Francisco and is Vice Chair of the California Commonwealth Club.

Originally published on Fox and Hounds Daily