Bipartisan Panel Aims To Fix California's Broken Tax System

by Leroy Baker, Tax-News.com, New York

03 November 2008

California Governor Arnold Schwarzenegger has announced the creation of a bipartisan commission to re-examine and modernize California's revenue laws in an attempt to put an end to what he described as the state's 'feast-or-famine' budget cycles.

This 12-member commission, appointed by the Governor and legislative leaders, will suggest changes to the state's tax system to provide more stable revenue streams and eliminate systemic failures in the budget system, which have led to chronic deficits in recent years.

"Unlike our diverse economy, our state's revenue system is the epitome of boom or bust and right now we are paying the price," Schwarzenegger said.

The state's latest budget was signed into law almost three months late with lawmakers divided along party lines over whether to increase taxation or cut spending to tackle a USD15bn budget deficit. However, since the budget was signed last month, it has already emerged that California could be facing a USD5bn to USD8bn shortfall due to the rapid decline of state revenues.

"California's tax system is antiquated and long overdue for an overhaul. Our state is one of the most advanced economies of the 21st century, but it relies upon an outdated and volatile tax model that no longer makes sense," said Senate President pro Tempore Don Perata.

"This commission will examine how to best capture revenue in California's dynamic economy and put the state's finances on the stable and sound footing needed to remain a global leader," he added.

While the formation of the panel appears to have been welcomed by both parties, some Republican lawmakers have suggested that the review's remit should not just be confined to taxes, but also to the state's expenditure.

"I applaud the Governor for working with legislative leaders to address California's broken budget system and I look forward to reviewing revenue-neutral recommendations from the commission, not just on fixing our revenue system, but also on how the state can adjust its spending levels to come into alignment with revenues," said Senate Republican Leader Dave Cogdill.

The commission will be made up of 12 members; six appointed by the Governor, three appointed by the Senate President pro Tempore and three appointed by the Speaker of the Assembly. The Governor will designate the chair. The members of the commission will be named before their first meeting in November. They will report their findings to the Governor and the legislature by April 15, 2009.

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