Group Says 10 California Tax Changes Could Boost State Revenue by $20 Billion

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By Laura Mahoney

SACRAMENTO, Calif. — In the face of ongoing, chronic state deficits of about $20 billion a year, lawmakers and the governor can make 10 changes to the tax system that mainly involve closing tax breaks and increasing taxes on oil, tobacco, and alcohol to raise more than $21 billion a year, the California Tax Reform Association said Dec. 1.

The liberal group said its list of 10 changes belies Gov. Arnold Schwarzenegger's (R) recent claims that the “low-hanging fruit” has already been cut from the budget.

“[L]oopholes, untaxed windfalls, tax breaks with no benefits, taxes on the very rich and sin taxes, the taxes with little or no impact on economic recovery, have not been cut at all,” CTRA said.

Most of the ideas have been proposed or debated in the Legislature in recent years, and several of the proposals have been vetoed by the governor. The ideas are likely to resurface as the Legislature begins its 2010 session in January.

Steps to Consider

According to CTRA, lawmakers should:

• enact an oil severance tax of 9.9 percent on each barrel of oil extracted in California, for revenue of $1.2 billion;
• eliminate corporate tax changes enacted in 2008 and 2009 that take effect in 2011 to allow loss carrybacks, sharing of tax credits among members of unitary groups, and elective single sales factor for state income tax apportionment, three changes CTRA calls “secret loopholes” because they were enacted without debate or discussion;
• broaden the sales tax base to include entertainment, admissions, parking, golf, skiing, and hotels, as well as telecommunications, satellite, and cable, for $2 billion in revenue;
• reinstate top income tax brackets to 11 percent on the top 1 percent of earners, for revenue of $4 billion to $6 billion depending on how the brackets are set;
• close loopholes in property change-of-ownership rules that allow corporate entities to avoid reassessment at market value, for revenue of $2 billion;
• set the vehicle license fee to 1 percent of value, rather than the 0.6 percent established in 2004 or the 1.15 temporary rate that took effect in 2009, for revenue of $1.3 billion;
• close corporate tax loopholes that have shown no economic benefit, including an end to the enterprise zone program and like-kind exchanges for state tax purposes, and create of a new requirement that offshore tax havens be reported within the water's edge, for revenue of $1 billion;
• increase the tax on tobacco and alcohol, for example a tax of 10 cents per alcoholic drink, for revenue of $2.4 billion;
• improve tax collection by enacting changes vetoed by Schwarzenegger to withhold tax on income for independent contractors, require collection of sales tax on remote sales to California such as internet sales, and allow the state to match records of financial institutions to locate tax debtors, for revenue of $2 billion; and
• decrease the current, temporary 1 cent sales tax increase to 0.5 cent, for remaining revenue of $2.5 billion.

More information is available from the California Tax Reform Association at .