Panel Set To Recommend Calif. Tax Overhaul / California Tax Proposals At A Glance

Sep 20, 2009 3:03 pm US/Pacific
Panel Set To Recommend Calif. Tax Overhaul

SACRAMENTO (AP) ― A special commission this week is scheduled to recommend a sweeping overhaul of California's antiquated tax system, a move designed to bring fiscal sanity to a budgeting process plagued by wide revenue swings and perpetual deficits.

State fiscal experts agree generally that California's revenue structure relies too heavily on the wealthy and the whims of the stock market while failing to capture taxes from the now-dominant service sector. The commission, established by Gov. Arnold Schwarzenegger and the Legislature's Democratic leaders, was charged with finding ways to end years of topsy-turvy budgeting that have left the state a financial wreck.

Over the past two years, the state has been forced to make deep cuts in education, health care, parks and other core services while furloughing state employees.

The proposal, laid out by the panel in a series of public meetings, would change dramatically how California's government raises money. The primary changes would reduce taxes on the wealthy and broaden the business tax to capture growing sectors of the economy.

Despite high expectations, the proposal by the Commission on the 21st Century Economy already is being met with skepticism before it has even been delivered to Schwarzenegger's office. The hand-off was expected Sunday but the panel, which has been meeting since January, said it would not turn in its report until later in the week.

Union leaders worry the policies might drive down wages, while businesses fear being saddled with larger tax burdens. Economists say more study is needed to determine what effect the overhaul will have on the world's eighth-largest economy.

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Sep 20, 2009 3:38 pm US/Pacific

California Tax Proposals At A Glance

(AP) -- 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.

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