California Special Commission Recommends Killing State Sales Taxes

Brian Doherty | September 21, 2009

A special state commission, the Commission on the 21st Century Economy, has come out with a set of radical proposals to reshape California's tax system, including getting rid of the sales tax. Various state politicians and special interest groups have already declared the ideas dead in the water. The heart of the proposals, from an L.A. Times account:

Under the plan, the state's current half-dozen income tax rates would be replaced by two -- 2.75% for those making up to $56,000 a year and 6.5% for those earning more. Sales and corporate taxes would be replaced by a single new business levy that would spread the burden -- at a tax rate of about 4% -- more broadly and would include service professions.

More details and background on this tax reform proposal, and the reasons it was seen as necessary, from me at my California news and politics blog "City of Angles."

Matt Welch in May on how the real problem with California state revenue is and remains insane spending levels.

Comments

John Tagliaferro|9.21.09 @ 3:15PM|#

Matt Welch in May on how the real problem with California state revenue is and remains insane spending levels.

True dat.

But this proposal of replacing everything with a few "flat taxes" and a one-step income tax deceptively appears to be a move in the right direction, on the tax end.

|9.21.09 @ 3:21PM|#

The only thing with the one-step income tax is it sucks if you happen to make between $56,001 and $58,246 (especially if you happen to make exactly $58,246, in which case your take-home is the same as somebody else who netted $56,000). I would think some sort of phasing in would be appropriate.

Of course, this will never happen so debating the nuances is kind of pointless, I guess...

|9.21.09 @ 3:21PM|#

Various state politicians and special interest groups have already declared the ideas dead in the water.

Well duh! The proposal doesn't allow for the current insane spending levels, so of course the whining class doesn't like it.

|9.21.09 @ 3:22PM|#

Sales and corporate taxes would be replaced by a single new business levy that would spread the burden -- at a tax rate of about 4% -- more broadly and would include service professions.

Do you mean 'a new business levy of 4%'? Because that sounds like a tax. Or do you mean 'a levy on new businesses of 4%'? Because that sounds like crony capitalism. Typical entrench the establishment by punishing those that would challenge it.

|9.21.09 @ 3:22PM|#

California - proof positive that Liberals don't have the brains required to manage the bank book. Nuff Said :P

Grrrrrr!

|9.21.09 @ 3:24PM|#

The only thing with the one-step income tax is it sucks if you happen to make between $56,001 and $58,246 (especially if you happen to make exactly $58,246, in which case your take-home is the same as somebody else who netted $56,000). I would think some sort of phasing in would be appropriate.

Huh? I think we can assume these are marginal tax rates, like in any discussion of income tax rates. Sales taxes are fairly efficient; if California has the nation's highest sales tax now but the percentage of California's tax receipts from the sales tax has fallen dramatically (from 60% to 25%), then it's obvious that California is spending too much, as Matt says.

From the description, are they talking about some kind of VAT?

Paul|9.21.09 @ 3:31PM|#

Great. So California opts to get rid of the one tax that makes sense on several levels. California should be dropping every other tax and leaving the sales tax.

Oh yeah, and quit spending like teenage girls with Dad's credit card would help.

Meta4|9.21.09 @ 3:38PM|#

"6.5% for those earning more"

6.5% to the fucking state?

|9.21.09 @ 3:45PM|#

Sales and corporate taxes would be replaced by a single new business levy that would spread the burden -- at a tax rate of about 4% -- more broadly and would include service professions.

I have been coming, lately, to believe a "gross receipts" tax (with no targetted incentives/deductions or other social engineering distortions) is probably the best we could do.

As a self-employed individual filing Schedule C, I could easily be induced to pay four per cent on my gross, rather than going through a lot of gyrations regarding business expenses.

I do not, (yay!) live in California.

|9.21.09 @ 3:46PM|#

ps- A gross receipts tax would, in effect, look a lot like a sales tax.

|9.21.09 @ 3:54PM|#

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AlanS in Cullyfornia|9.21.09 @ 4:04PM|#

This 4.8% gross receipts tax would be paid by businesses and passed on to the consumer in the form of higher prices.

The benefit to the state is that the sales tax would not appear on customers receipt giving us one less thing to gripe about.

And, yeah the state needs to spend less.

|9.21.09 @ 4:06PM|#

Maybe this proposal could be packaged with a balanced budget amendment to the State Constitution.



I crack myself up.

|9.21.09 @ 4:08PM|#

6.5% to the fucking state?

Right now it's a marginal 9.3% to the state for single-filers earning above $44,814.

If you earn over $1 million, you are whacked with 10.3% to pay for Proposition 63 mental health programs.

Rich|9.21.09 @ 4:27PM|#

income tax rates would be replaced by two -- 2.75% for those making up to $56,000 a year and 6.5% for those earning more.

How about we try this at the national level?

Sean W. Malone|9.21.09 @ 5:01PM|#

Argh... I wish California would consider that about 90% of their policy is designed to drive businesses & jobs away from this stupid place. The recent increase in sales tax up to 9.75% in Los Angeles is really rather painful.

|9.21.09 @ 8:16PM|#

As a self-employed individual filing Schedule C, I could easily be induced to pay four per cent on my gross

What if you're like a lot of businesses, with an 8-12% gross margin. A 4% gross receipts tax is more like a 33-50% income tax. It's insanely high. I hate gross receipts taxes generally, but if you're going to have one, it should be in the 0.5% range.

While we're at it, why not conform California's taxes to the Federal system? It's a pain in the butt (not to mention a waste of money) to keep two different sets of books because California's tax rules on things like depreciation, AMT, and so forth differ from the Federal system.

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Michael Ejercito|9.21.09 @ 10:17PM|#

What was per capita spending in California in 1998?

What is it today?

|9.22.09 @ 1:37AM|#

Spending is definitely the problem. Everything else is just rearranging the deck chairs.

And yo, fuck extending the tax to services. Doesn't matter the rhetoric they use, that's a flat out tax increase.