As Expected, California Tax Commission Releases Sharply Regressive Tax "Reform" Plan

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After ten months of work, California’s “Commission on the 21st Century Economy” has finally released its recommendations for overhauling the California tax system.  The Commission has proposed to eliminate the corporate income tax, eliminate the sales tax, sharply reduce the progressivity of the individual income tax, and enact a new “business net receipts tax” (BNRT) that would function in many respects as a new, less transparent sales tax.  The income tax changes are especially appalling, as the Commission’s own presentation (see the last slide) concedes that taxpayers with incomes over $1 million would receive an average tax cut of over $109,000 per year, while those making under $50,000 would receive somewhere in the neighborhood of $3 annually from the plan.

Jean Ross with the California Budget Project (CBP) hit the nail on the head with her remark that the plan constitutes "a massive shift in ... financing public services from the wealthy and corporations to middle-income families [that] is nothing short of stunning."  Ross is by no means the only person displeased with the Commission’s plan.  Business groups, labor, and numerous tax experts have all already come out in opposition to major components of the report.  One LA Times columnist reacted to the magnitude of the outcry by stating: “Sure, you can't please everyone. That's a given on anything controversial. But come on! Maybe at least a few people?”  Fact is, there’s nothing here worth being pleased about.

Throughout the Commission’s deliberations, University of Connecticut law professor (and ITEP Board President) Richard Pomp has been a strong voice both for progressives and for anybody interested in good tax policy.  In a 21-page criticism of the Commission’s work, released earlier this month, Pomp decried the plan’s regressive income tax cuts, its elimination of the corporate income tax, and its reliance on a new, untested, and unstudied business net receipts tax (BNRT).  The purpose of the BNRT, notes Pomp, is to serve as a “non-transparent” consumption tax, meant to raise the revenue needed to finance the Commission’s income tax cuts, and allow the state to finally tax services while instead appearing to only tax California businesses.

Pomp has also written a statement on the Commission’s final package, which should be posted here at some point in the near future. To learn more, you can also listen to Jean Ross thoughts on the Commission's work.

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