10 ways to fix the budget

Assembly Speaker Karen Bass is right: Gov. Schwarzenegger’s proposed budget is “a big pile of denial.”

He wants the federal government to give the state $7 billion. He thinks he can cut prison spending by one-third. He believes he can convince state workers to accept 5 percent pay cuts, a 5 percent increase in benefits costs, and a 5 percent reduction in overall staffing.

On top of that, he’s proposing an additional $4.6 billion in cuts to welfare, social programs, health care and the courts. And if that $7 billion doesn’t come through from the feds, he intends to wreak wholesale slaughter on social programs.

Say what? As Senate President Pro Tem Darrell Steinberg put it, “You’ve got to be kidding.”

The budget reeks of desperation. Clearly, after years of slashing programs, the governor has run out of ideas for bridging yet another deficit—this one amounting to $20 billion.

Let’s be real: It can’t be done without considering new sources of revenue. The good news is that there are ways to increase revenue that are fair, reasonable and tolerable—even during a recession.

Contrary to popular myth, California is not a high-tax state. In recent years it ranked 17th in the percentage of income that goes to state and local taxes, just above the national average. And it has cut taxes. Tax cuts enacted since 1993 cost the state an estimated $11 billion in 2008-09, according to the California Budget Project.

In addition, the economy has changed. People are buying more services, which aren’t taxed. Had taxable purchases accounted for the same share of personal income in 2008 as in 1967, the CBP reports, the state would have collected an additional $16.4 billion in sales-tax revenues.

California’s corporate tax rates are relatively high, but its corporate tax collections are low, thanks to a sieve-like set of tax breaks. Corporations pay a much smaller share of their profits in taxes now than they did in 1981. If the share had been the same in 2008 as it was in 1981, corporate tax collections would have been $8.2 billion higher, according to the CBP.

Here are 10 ideas for increasing state revenues:

• Repeal the $2 billion in corporate tax breaks, enacted as part of the February 2009 budget deal, that go into effect in 2011.

• Impose an oil severance tax similar to those in other states. At 9.9 percent, it would yield $1.2 billion.

• Broaden the sales tax to include services such as legal, accounting, auto repair, entertainment, gambling. Yield: $7 billion.

• Create a split property-tax roll, keeping Proposition 13’s protection of residential property while assessing commercial property at current market value. That would raise another $3.3 billion and create a fairer business environment that doesn’t discriminate against start-ups.

• Raise community college fees from $26 per unit to $60. Increase financial aid and exemptions for low-income students.

• Maintain the vehicle license fee at 1 percent. Now temporarily at 1.15 percent, it is slated to revert to 0.6 percent in 2011. Keeping it at 1 percent will generate an additional $1.3 billion.

• Increase tobacco and alcohol taxes. Possible yield: $2.4 billion, and less smoking and drinking.

• Extend a half-cent sales tax. A temporary 1-cent sales-tax increase will expire in July 2011. Keeping a half-cent tax beyond 2011 should generate $3 billion.

• Reinstate the top income-tax bracket to 11 percent, the highest rate under former Gov. Pete Wilson. It would generate $4 billion.

• Improve tax collections. As Lenny Goldberg, executive director of the California Tax Reform Association, points out, Gov. Schwarzenegger vetoed legislation that would have provided an additional $2 billion in improvements in collections, including withholding on independent contractors and proposing a bank records match.

These are just 10 of many ways to eliminate boondoggles, tighten collections, eliminate waste and save money. For more fresh ideas, go to www.caltaxreform.org.