California’s Commission on the Twenty-first-Century Economy released its final report on Tuesday, September 29. Charged by the governor with suggesting changes to state and local revenues that will result in a more stable revenue stream that reflects the California economy, the commission is made up of 14 members, including Hoover senior fellow Michael Boskin and John Cogan, the Leonard and Shirley Ely Senior Fellow at the Hoover Institution.
In an op-ed in Wednesday’s Wall Street Journal, “How California Can Get Its Groove Back,” Boskin and Cogan wrote that:
The commission’s majority report recommendations were made public Tuesday. They include a sweeping overhaul of the personal income tax code that reduces tax brackets to two from six; eliminates all deductions and credits other than for charity, mortgage interest and property taxes; and cuts the top statutory income tax rate to 6.5% from 9.3%. Most taxpayers would receive a 25%-30% tax cut and all would pay less. The commission also recommends abolition of the state’s corporate income tax and the elimination of most of the state sales tax that finances the state’s general revenue fund (as opposed to special funds for transportation, etc.). Finally, to replace the lost revenue, the commission recommends a broad-based, low-rate state value-added tax (VAT), collected on business net receipts (revenues less purchases from other businesses, including immediate expensing of capital), that is capped at 4%.
These reforms will reduce the volatility of state revenues by 40% (using commonly accepted measures) mostly by reducing the reliance on personal and corporate income taxes, and moderate the current tax code’s extreme progressivity. They also will result in a $7 billion net tax cut per year for Californians without raising taxes on any income group, as some of the new VAT would be borne outside the state and more of Californians' taxes would be deducted against federal taxes.
