The Budget crisis: Revenues and StrategiesLenny Goldberg

California Tax Reform Associationwww.caltaxreform.org

CARA 10/20/09

The Trouble We’re In

• $32 billion in cuts, February and July budgets• $8 billion in taxes expire• $2 billion in new corporate loopholes take effect• Revenue acceleration, expenditure deferral• Borrowing and questionable “revenues”• Loss of stimulus funds• Economic recovery?• $10-$20 billion deficits, through 2013

Why we’re in trouble

Approaching Revenue

• Fees, collections, majority vote strategy• End waste, fraud and abuse in the tax system: • Fairly spread the burden• Majority vote strategies?• Structural change

Waste, Fraud and Abuse=$7-8 bil

• Oil severance: $1 billion• Eliminate new, secret corporate loopholes: $1.7-2.5b• Eliminate multi-national tax sheltering: $700mil• Eliminate enterprise zone breaks: $400 mil• Tighten change of ownership for commercial property

(statutory): $2 billion+• Strengthen collections (Amazon nexus, abusive tax

shelters: $500 million• Like kind exchanges of commercial property: $350 mil• Limite Subchapter S to small companies: $600 mil.

Spread the Burden Fairly: up to $14b

*Restore top income tax brackets: $4 billion, $6 billion after recovery (10 and 11% bracket )

*Restore VLF at 1%: $1.3 billion*Broaden sales tax base to commodities mistaken as

“services” ( entertainment, admissions, sports): $2-4 billion (higher # includes telecommunications, video, electronic)

*Tobacco: $1 billion*Alcohol (10c/drink) $1.4 billion*Soda tax? $1 billion*Marijuana? $1+ billion*(Carbon tax = up to $8 billion)

Commission on 21st Cent Economy

• Lower taxes on wealthy:-$7 billion for top 1%• Eliminate corporation tax = -$10 billion• Phase out state share of sales tax• Replace with approx $50 billion in “business

net receipts tax”– Unknown, untried, attempt at value-added tax– Falls on food, renters, childcare, services– Unknown interstate commerce issues

Majority vote: what can be done• Collections: $2 billion vetoed by the Governor– Independent contractors– Amazon nexus– Bank records match, etc

• Fees: $1.4 alcohol, $1b tobacco, soda, others= $2-3billion

• Revenue: redefine gas tax as fee, replace with oil severance, others: $4-5b

• Two-step strategy on change of ownership loophole=$2 billion

Structural Reform = $8 billion

• Reassess commercial property: “split roll”– Largest hole in tax system– Bad economics– Loophole-ridden law– Counterproductive fiscal policy– Bad environmentally: speculation and sprawl

• To cities, counties and schools• Current research

Structural change: process

• Majority vote for budget, taxes, vs 2/3• Constitutional Convention • Ease restrictions on local taxation• Budget reforms/CA Forward

Why?....