California tax proposal
A government commission in California issued recommendations for revising the CA tax laws. The plan includes lower personal income taxes and elimination of the corporate income tax (including elimination of the $800 minimum tax). This will be offset by a business net receipts tax of up to 4% (small businesses with less than $500,000 gross receipts would be exempt).
This is, in my opinion, a fairly radical proposal. For example, reducing
taxable income by paying management fees to a related company would no longer
reduce taxes. Instead, since it would increase net receipts for the management
company without reducing net receipts for the other company, overall state tax
would increase. Thus, it would adversely affect tax planning and structures that work well for federal taxes and the taxes of most other states.
The commission recommends implementing the plan over a five-year phase in, beginning in 2012.
I discussed this with my graduate students last night, and one of them (thank you, Mr. Vail!) pointed out that the commissioners appointed by Governor Schwartznegger supported the proposal and the other commissioners opposed it. Another student opined that the proposal is reminiscent of Texas tax law--which brings to mind Molly Ivin's comment that Texas is the laboratory for bad government.
One of my colleagues, Ron Vargo, a CPA in NJ, told me today that he heard that part of the proposal included eliminating sales taxes. Perhaps this was meant to reduce the burden on the middle class, but Ron pointed out that the corporations will likely pass their tax burden through to customers in higher taxes.
Overall, it seems that this proposal does not consider which taxpayers bear the greatest burden--or maybe it does, and the proponents know that it keeps the burden off the wealthy.
A
