Policy Spotlight: Commission on the 21st Century Economy

The Commission on the 21^st Century Economy met on Tuesday, June 16 at the University of California, Los Angeles to review a handful of proposals for revamping California’s tax structure. The Commission, established by an executive order of Gov. Arnold Schwarzenegger last year, has several objectives tasked to it for reforming California's budgeting and revenue structure, including:

• Establishing a 21^st century tax structure that fits with the state's 21^st century economy;
• Stabilizing state revenues and reduce volatility;
• Promoting the long-term economic prosperity of the state and its citizens;
• Improving California's ability to successfully compete with other states and nations for jobs and investments;
• Reflecting principles of sound tax policy including simplicity, competitiveness, efficiency, predictability, stability, and ease of compliance and administration;
• Ensuring that tax structure is fair and equitable.

Comprised of business leaders, former legislators, and other public officials, the Commission is required to submit a proposal to the governor and the Legislature no later than July 31, 2009. I attended the hearing in Los Angeles and composed a detailed report for CHI’s membership, which you can view here. The Commission has one final meeting on July 16, in San Francisco, before their proposal is due.

At the meeting in Los Angeles, the discussion focused on replacing more volatile parts of California's revenue stream (progressive personal income taxes, capital gains taxes, and sales taxes) with a business receipts tax. Such a tax would envelope services provided in the state, which currently are not taxed, and would lead to a tax structure that while more stable would be inherently more regressive. States such as Ohio, Texas, Michigan, and New Hampshire have all implemented this type of system with varying levels of success. The regressive nature of the proposal, however, may prove to be the Commission's Achilles' Heel—budget proposals are unable to reach the 2/3 vote required for passage, and the Commission's proposal will face a Sisyphean task of surmounting the 2/3 requirement to establish a more regressive tax structure during the largest recession since the 1930's with a Democratic Legislature.

CHI will be attending the final meeting of the Commission next month at the University of California, San Francisco. If you have thoughts about the Commission or its proposals that you would like to share, please contact me at 916-233-3490 or engelhardt@chi.org.

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