A bi-partisan committee of business and policy luminaries have just released a report on their plans to update and modernize California governance, including an overhaul of state’s tax system. Learn about their ideas for fixing California.

Gray Davis, former California governor and a member of the Think Long Committee for California at the Nicolas Berggruen Institute.
Dan Walters, political columnist at the Sacramento Bee.
Robert Hertzberg, former speaker of the California Assembly. A member of the Think Long Committee for California.

  • Sam

    Let’s replace prop 13 with a progressive property tax! Let’s have an Alaskan-style extraction tax on oil! Let’s increase taxes on mineral rights! If you exploit Californian land and resources, you should help to finance the education and health care of the residents.

  • Beth Grant DeRoos

    Why don’t the wealthy simply create a non profit and then write big checks which
    then can be targeted to specific educational needs? And where are the calls for
    major educational reform per teachers and the power their union plays? 

  • Karen Ivy

    A comment:

    Sales tax is the most regressive tax there is.  This is somewhat mitigated by the drastic lowering of income tax, but for poor people who don’t currently pay that much income tax, a broadened sales tax, especially on services, will be a burden.  I haven’t heard anything about WHAT services will be taxed.

    A question:

    One of California’s problems is “ballot box budgeting,” that ties up funds for specific purposes.  How is this not just more ballot box budgeting?  I agree that the legislature is dysfunctional, but how does this fix our problems, and is it reasonable to rewrite the tax code through ballot initiatives like this?

  • Tony

    It seems that small business are already faced with a mountain of paperwork and regulation that hurt their ability to be profitable and encourage them to move elsewhere. How is this tax going to be managed and what burden does it put on small business to collect? Also in today’s digital world what is going to prevent these professional services from moving out of state and going digital. Certainly my tax preparer doesn’t have to be in CA to do my taxes?

    • Eve Lindi

      Thanks for that Tony – I listened to the re-broadcast tonight, and was surprised no-one mentioned this aspect. I’m a solopreneur providing virtual administrative services to clients all over the country. How many unbilled hours am I going to have to devote to complying with this new tax. How will I compete with other providers in other states who don’t have to charge this tax? I’ll tell you how, by forgoing my next rate increase.

      I have so many friends and acquaintances who will be in the same boat, people who are barely hanging on to their businesses through this downturn.

  • Feforee

    Just listening to Gray Davis explain salient points of panel.  Again it sounds like corporations get a break, what about Prop 13 and property tax on corporations?

  • jurgispilis

    For newly created jobs, what guarentee is there that these new jobs will not go to foreign workers?  If we continue to import foreign workers for new jobs, then there will be no improvement in the unemployment rate.

  • Databone

    Davis was recalled for failing to defend Prop 187.  Now, Gov. Jerry Brown is refusing to defend Prop 8.  Are our elected leaders being neglegent in following the will of the people?  Wouldn’t it not be a good first step, for our leaders to follow the State Constitution and will of the people? 

  • Sam

    Instead of a sales tax which hurts the poor, I’d rather see a tax on oil and mineral extraction. Such a tax could cover much of the education shortfall without ripping off the workers and middle classes. The oil and minerals can’t go out of state, so the businesses extracting cannot merely move their investment elsewhere.

    Also, I hear gray davis talking a lot about protecting the middle class, but he hasn’t mentioned anything about protecting the lower-working class which is really suffering.

  • humble warrior

    Davis’ assumption that education is the key for job growth and creation, but one should carefully reevaluate that position.  Education is so expensive today.  So many graduates are underwater in debt.  So many college graduates are without jobs.  I think Davis’ reasoning is wrong. 

    I recall another platitude that said that homeownership was the key to economic mobility.  We know where that sort of thinking has gotten us.

  • Jim

    Any propose4 plan that doesn’t do something about prop 13 is deluding itself and leaving California seriously wounded.  The obvious target is to eliminate the protections of prop 13 for all property except an individual’s primary residence.

  • Guest

    Sorry, Charlie.  Any plan that comes with Condi Rice’s name on it is ethically bankrupt. I can’t take this proposal seriously when the median income of the members of the committee is probably 8 digits.

  • Stephen Schmid

    Here’s a proposal to reform the property tax that’s been overlooked for years:
    Instead of charging the tax based on the property’s value, it should be charged based on the square footage of the land and the structure.  This has at least 3 advantages: 1. It eliminates the volatility of tax revenue when housing values go up and down.  2. It protects property owners from rising taxes if housing over-inflates. 3. It eliminates the need for government to waste time tracking the assessed values of the millions of properties in the state.

  • Paula in Oakland

    Taxing services? I am a consultant. So then I would have to start charging sales tax and paying it to the state? This is a large burden for many many small people who don’t have regular jobs already because of the economy…

  • Dfig

    If the goal is revenue stabilization, why not set up a fund we pay into in good times, and draw down in hard times?
    Davy in Sebastopol

  • Raymond

    Did the committee consider a tax on financial transactions in California?

  • Gary mack

    Taxes are also a mechanism for regulation of behavior.  High personal income taxes cause the wealthy to invest, in businesses as well as financial instruments.  In line with this are financial transactions services that will be taxed?

  • Jeff Fisher

    Davis repeatedly used what is a common rhetorical trick in tax discussions.

    The trick is to switch between talking about the whole system and one particular element of it.  Often this is done because the two contexts give advantageous answers to different questions.

    He, at least twice, said that some group of tax payers would pay less in income taxes under the proposal.  All well and good, but the proposal is not only an income tax proposal it is also a sales tax proposal so it is entirely possible for people to pay less in income taxes and still more in overall taxes.

    A lot of tax discussion at the national level uses the more deceitful version of this trick where the fact that the statistic refers only to one specific tax is omitted:  “group x pays no taxes” more often than not actually means “group x pays no federal income taxes” ignoring social security, medicare, sales, property, etc taxes.

    What I want to see is a chart of the total tax incidence of this proposal across income levels.  Each quintile, then breaking out the top quintile into top 10%, 5%, 1%, .1%, .01% is usually good.  It isn’t hard at all to make a tax system that is progressive across the bottom 99% of income, but takes a smaller bite from the top 1%.  Sales taxes are a very good way to make such a system because within the top 1% people start spending less and less of their income.  Lower rates for capital gains and other investment income are another, for the very rich get much of their income in that way (eg Warren Buffet’s tax rate which is famously lower than his secretary’s).

    So now I’ll go look for one 🙂

    • Sudip

      Here are some scenarios that might help understand the


      (The first two scenarios represent a booming economy)


      Suppose there are 100 people in an island economy, 10 are
      rich and 90 are non-rich.  Total income
      of the 10 rich people is $10 million and the total income of the 90 non-rich
      people is $4.5 million.  


      Scenario-1 (only income
      tax): The rich are paying 5% state income tax and the non-rich are paying 1% of
      state income tax.

      Total state tax revenue = $500,000 (from rich) plus $45,000
      (from non-rich) = $545,000


      Scenario-2 (only sales
      tax): Assume that the rich spend a third ($3.3 million) of their income and the
      non-rich spend 90% of their income ($4.05 million).  Assume sales tax is flat 7.5%.

      Total state tax revenue = $247,500 (from rich) plus $303,750
      (from non-rich) = $551,250

      Notice that the tax
      revenues are similar between scenario-1 and scenario-2, but there is a sharp decrease
      in the tax burden for the rich and a sharp increase in the tax burden for the
      non-rich, relative to scenario-1.  One
      way to justify less burden for the rich is that they save more, which gets invested
      and that investment (they like it or not) brings return for the future
      generation.  You on the other hand just
      consume, and you like it or not, you can hardly afford to think about the
      future of mankind.


      The next two scenarios represent a sharp downturn in the
      economy like the one we have now.  Total
      income of the 10 rich people is $5 million (as opposed to $10 million) and the
      total income of the 90 non-rich people is $4 million (as opposed to $4.5


      Scenario-3 (only
      income tax): Income tax structure remains as in scenario-1. 

      Total state tax revenue = $250,000 (from rich) plus $40,000
      (from non-rich) = $290,000.

      Now compare Scenario-1 versus Scenario-3. Notice that the
      tax revenue went down by more than half because of the economic downturn.  

      This example mimics the current mess in California.  The revenue has shrunk because of too much
      dependence on income tax.


      Scenario-4 (only sales
      tax): Assume that the rich spend the same $3.3 million of their total income
      of $5 million and non-rich spend 90% of their income ($3.6 million).  Assume again that the sales tax is a flat 7.5%.

      Total state tax revenue = $330,000 (from rich) plus $405,000
      (from non-rich) = $517,500

      Now compare Scenario-2 versus Scenario-4.  Notice that in spite of the economic downturn
      in Scenario-4, state tax revenue didn’t go down much ($551,250 versus


      Summary: If you depend too much on state income tax like now,
      you will get into the same mess every five to seven years.  If you go for sales tax, you (non-rich) bear
      the burden more, but you will go through the economic mess much less
      frequently.  There is no other choice for
      you unless you seriously consider doing away with all the entitlements that the
      state is currently burdened with.


  • Jeff Fisher

    Oh, another use of the income tax vs tax trick is the long view talking point that “the top 5 percent of state tax filers would pay 62 percent of all income taxes” (not a quote from davis today, but he used this or a similar line).

    Why the specificity on the income tax?  Probably because the sales tax does very much the reverse making the plan at least much less progressive, but they want the plan to look very progressive.  This one is getting really quite cynical as a major point of their plan is to reduce reliance on income taxes.

    IMO the way out of the prop 13 problem is probably to entirely eliminate the property tax.  Not a great solution, but at least it would kill the crazy incentives for overextending in real estate and unequal snowballing benefits of the current scheme.

  • Jeff Fisher

    Calitics has a quick analysis of the effects of this proposal on the very rich:

    The basics are that the top income tax rate goes from the current 9.3% to 7.5% under the plan, the corporate tax rate is cut, and all the other changes don’t matter much at all to very high income people (who spend much less of their income and for whom deductions, etc are small compared to their income).

    So it looks like a tax cut for the very rich.  Not sure about the sorta-rich.

  • Valentine Smith

    Trickle-up poverty:

    it’s a trainwreck, and it’s taking place at the bottom.

    I just made my debut in a new career, and it showed me in a direct and personal way what is really wrong California and the rest of the United States. 

    Many people admired my hand-made feather hair ornaments and wanted to buy them.  A few people did, but not enough for me to break even on the fee to have a space at the event. 

    One really nice man asked if he could trade me web services, but I explained I’m already good at HTML.  A beautiful woman confided that she’d just received her pink slip and didn’t know what she was going to do next.  One of the other craftspeople fell in love with something of mine, and said that if someone brought one of her fancy hats she’d be able to buy from me.  I wandered to her display later on, and heard a woman agonizing about how she really really wanted to buy one of those beautiful hats, but she’d just lost her job, and had to worry about paying the rent, so she just didn’t dare.

    So she didn’t buy, and the hatmaker didn’t buy from me.  Later on, I bought a bit of dinner, buying the cheapest meal instead of the celebratory one I would have if I’d broken even or made a profit.

    My old career, got “globalized,” so after decades of making and selling consumer electronics, I own a middle class house in an upper middle class neighborhood, am still living off savings despite having had no income for a long time, and am not in debt.  My new “career” is so far a net loss, so I wonder how I can get a  tax credit under the new system, since I’m too poor to pay any taxes.

    Yesterday a lady on the street asked me for a contribution to a good cause; I said I had no income and was about to sell handmade crafts on the street in Berkeley.  She said she was an artist, too, and we talked about how she could set up to try selling images of her artwork on canvas bags there.

    Can we all go to street level and try to sell each other things?  No, we can’t, because cash has stopped flowing, and it takes cash to pay rent and taxes and utility bills.

    I’m writing in a cold, cold house, because I don’t want to buy the gas to heat it.

    The 99.999% will definitely vote to tax the .0001% if we could.

    If we starve in the streets, we’ll try to do it noisily.

  • Vic

    The idea that any proposal  conceived without the input of the 99% would be “fair” to the 99% is ludicrous.  Do not allow yourselves to be deluded by advertising promoting this plan.  Defeat the plan and insist a plan be developed democratically, not autocratically.

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