The Legislature and Governor have managed to put together another “get out of town” budget agreement that fails to close the state’s structural budget gap and does nothing to collect the billions of dollars in tax revenues resulting from waste, fraud, and abuse in the state’s tax system.
Yesterday the Governor announced that he will immediately call the legislature into a special session when the 14-member Commission on the 21st Century Economy submits its recommendations for modernizing and stabilizing California’s tax system. The Governor also signed an executive order granting the Commission’s request to extend the submission of their report to September 20, 2009.
The Commission began its work late last year but does not appear to be close to reaching any kind of consensus on a tax package that would significantly address the waste, fraud, and abuse in the state’s tax system, largely because their initial charge was to focus on making the system less volatile, as opposed to more fair and equitable.
An open and honest examination of the state’s tax system reveals that there are billions of dollars worth of loopholes, inefficiencies, and enforcement gaps in the state’s tax system that should be corrected before making deep cuts to important state programs such as education, health care, and human services.
Attempting to close the state’s $26 billion budget gap without examining the revenue side of the equation is reminiscent of the story of a drunk who has lost his keys but spends all his time and energy looking under the street lamp to find them, where he can see, as opposed to all the other dark places where the keys may be.
To illustrate, as outlined in a recent Los Angeles Times article titled “It’s time to close a big tax loophole for businesses,” the state’s commercial property tax is riddled with loopholes: 100% of a company can change hands without triggering a market rate reassessment. The use of off-shore tax havens have gone unchecked, sales taxes on remote sales are not collected even though they could be, independent contractors can avoid paying the taxes they should, and new studies have shown that the state’s enterprise zone system fails to create jobs and is riddled with waste, fraud, and abuse.
These are just a few of the proposals which should be considered. Lenny Goldberg and the California Tax Reform Association have put together a series of proposals that is available by clicking here.
Democratic legislators are open and willing to address this waste, fraud, and abuse in the tax system but the Governor and Republican legislators have unilaterally declared that they are against any and all “tax increases” even if the money would come from individuals and businesses who should be paying their fair share of taxes, just like everyone else.
Republican legislators justify their untenable position by saying that state spending is the problem and not revenues. But Republican legislators rejection of any and all tax change which raise revenues has created a situation where the tax system has been neglected for so long that the Democrats would be justified in refusing to make any additional program cuts until the Governor and Republican lawmakers are willing to address the problems in the state’s tax system.
Republican legislators are always saying how opposed they are to waste, fraud and abuse in state government, but do not object to allowing the endless manipulation of the state’s tax system by corporations and tax accountants.
To make matters worse, to gain Republican votes for for the September 2008 and February 2009 budget agreements some $2.5 billion in additional permanent corporate tax loopholes were passed into law without any public scrutiny or review for effectiveness.
The California Tax Reform Association, the American Federation of State, County and Municipal Employees (AFSCME) and the California Federation of Teachers recently filed an initiative to reverse these loopholes. For the initiative findings and declarations and text click here.
The California Budget Project has produced an analysis which shows that the vast majority of the benefits go to less than 0.1 percent of California corporations with over $1 billion in gross income.
The Legislature should also consider rolling back some of the $11.7 billion in permanent tax reductions that have been enacted since 1993-94. The California Budget Project has produced a chart showing the cumulative annual cost of these tax cuts.
The itemized annual cost of the various tax cuts enacted since 1998 are itemized in an Excel chart that is available by clicking here.
The state’s structural budget gap could be solved tomorrow if the Governor and Republican legislators would be willing to own up to the waste, fraud, and abuse in the state’s tax system and agree to work with Democratic legislators to pass common sense tax proposals which collect tax revenues from the taxpayers that should be paying them.