As the new Legislature settles in, students are protesting tuition increases while the state faces yet another funding crisis for higher education. This has set lawmakers abuzz about a new tax plan to replace Gov. Jerry Brown’s temporary increase, which will soon wind down.
This debate should not once more be about cobbling together short-term measures. Instead, it ought to focus on a vision of California and how that vision should shape our tax system — not vice versa.
California has long been known as the land of opportunity, but for too many residents, opportunity is receding. Inequality continues to rise even though California has one of the most progressive tax structures in the nation.
Something more is needed: a new philosophy of governance focusing on the progressive outcomes achieved through modernizing our tax system and investing in the means of upward mobility. Above all, we need public investment in infrastructure and public education, particularly higher education, for our increasingly youthful population.
Beyond these foundations, building and sustaining a middle class means new private-sector jobs with good wages. Small businesses, like plumbing contractors, auto repair shops and restaurants — which account for more than 90 percent of the state’s businesses and well over one-third of all jobs — are a key rung on the ladder of upward mobility. They need a tax policy that enables them to grow and add employees.
California’s $2 trillion economy has shifted from agriculture and manufacturing in the 1950s and 1960s — when the framework of today’s tax system was set — to one based on information and services, which now account for 80 percent of all economic activity in the state. We need a tax system based on this real economy while ensuring that new revenue is invested in strengthening the ladder of mobility.
The linchpin of that new governance philosophy is Sen. Robert Hertzberg’s (D-San Fernando Valley) Senate Bill 8, the Upward Mobility Act. It proposes three broad changes to the tax code. First, it would broaden the tax base by imposing a tax on services, exempting health care and education. Second, it would alter the corporate tax structure to provide incentives for business investment and for paying a reasonable minimum wage. And it would reduce personal income taxes across the board while retaining its progressive structure.
The latter provisions would be phased in when it is clear that new revenue from the service taxes is sufficient to replace revenue that would be lost by those changes — and is sufficient to provide low-income workers with an Earned Income Tax Credit.
Revenues from SB 8 are projected to be in the range of $10 billion and would be apportioned in the following way: $3 billion for K-12 schools and community colleges, $1 billion each for the two university systems, $3 billion for local governments and $2 billion for the new earned income tax credit.
If California’s future is to be as promising as its past, we need a tax system that reflects our real economy in the 21st century while ensuring that new revenue is invested in strengthening the ladder of mobility for all residents.
Edward D. Kleinbard and Laura Tyson contributed to this article.
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