$132 Billion in New Taxes/Fees Proposed by CA Legislators … So Far

As the Legislature nears the June 15 deadline for sending a budget bill to the governor, the California Taxpayers Association released “Tax Watch,” a report detailing $132 billion in new taxes and fees that have been introduced by lawmakers so far during this legislative session.

The report includes every bill introduced so far this session that would impose or authorize higher taxes, fees or tax-like “fees” estimated by state officials to generate $5 million or more per year in net revenue.

State revenue increased more than $10 billion this year under our existing tax structure, but that hasn’t stopped some lawmakers from asking for even more. With tax revenue surpassing expectations, and the state’s rainy day fund now in place to help weather future storms, this is not the time to be proposing $132 billion in new tax and fee increases. 

The most expensive proposal for taxpayers is Senate Bill 8 (Hertzberg), which would extend the sales and use tax to cover services (including veterinary services, auto repairs, gardening and music lessons).

The State Board of Equalization, which administers the sales and use tax, estimates that this change alone would cost taxpayers $122.6 billion every year, on top of all existing taxes.

To prepare “Tax Watch,” CalTax reviewed every bill introduced or amended from December 1, 2014, to May 29, 2015. In cases where two or more bills proposed similar increases (for example, four bills proposed taxes on marijuana), the cost was counted only once for purposes of calculating the total amount of taxes and fees proposed during this session.

resident of the California Taxpayers’ Association

Originally published by Fox and Hounds Daily

New Study: Proposed tax on services could costs Californians $122.6 BILLION per year

Just in time for Tax Day, the Board of Equalization issued a study requested by the Senate Committee on Governance and Finance estimating the revenue take from taxing untaxed services would be $122.6 billion. The study will become fodder in the coming debate over Senator Bob Hertzberg’s effort to restructure the state tax system to include taxes on the service economy.

Hertzberg commented on the study results, “California’s economy has changed from one that had been dominated by making goods to today where 80 percent is producing services.”

Hertzberg’s plan, Senate Bill 8, would tax services as part of a restructuring plan and raise an additional $10 billion in tax revenue.

In response to the study, Board of Equalization Vice-Chair George Runner said,  “I’d consider a broader sales tax only if it’s part of revenue neutral tax reform, such as abolishing California’s income tax and the Franchise Tax Board, along with other taxes that destroy jobs. … The last thing overtaxed Californians need is another tax.”

Runner opposes Hertzberg’s proposal.

There will be plenty of time to get into the debate over service taxes. However, it should be noted that the $122.6 billion the service tax could supposedly raise is not only larger than the current General Fund budget of $113 billion, but almost $10 billion larger. In other words, a tax on services as outlined in the study could replace the General Fund revenues and get the additional $10 billion that Hertzberg is looking for while eliminating the income tax, state sales tax and corporate tax.

Hertzberg’s proposal would not attach a service tax to all the items delineated in the BOE study, pointing out education and health care as tax-free services.

If not all services are taxed the door would be open for other services and industries to seek exemptions from the tax — a potential field day for the state’s lobbyists.

Cross-posted at Fox and Hounds Daily

$10 Billion Sales Tax on Services Proposed by State Senator

An influential state lawmaker is proposing a $10 billion sales tax on services that would include everything from accounting to yoga classes.

State Sen. Bob Hertzberg, D-Van Nuys, says the changing global economy requires a reevaluation of what’s considered subject to sales and use taxes. That’s why he’s introduced Senate Bill 8, a massive tax overhaul that, he contends, will help avoid “the state’s boom-and-bust tax structure.”

“During the past 60 years, California has moved from agriculture and a manufacturing-based economy to a services-based economy,” said Hertzberg, a former speaker of the State Assembly, who is considered one of the state’s most effective lawmakers. “As a result, state tax revenues have become less reliant on revenues derived from the Sales and Use Tax on goods and more reliant on revenues derived from the Personal Income Tax.”

“Something more,” he added, “something visionary, is needed.”

BOE member George Runner criticizes $10 billion tax on services

“Something visionary,” in Hertzberg’s view, is for state government to take “something more” from the state’s service workers. That means you’ll be paying “something more” every time you get a haircut, visit your accountant for tax help or call your lawyer.

taxesBoard of Equalization Member George Runner, who serves on the state board responsible for administering sales and use taxes, says Hertzberg’s plan is a massive tax increase masquerading as tax reform.

“Some California lawmakers want yet another $10 billion from the people,” said Runner, a former Republican state senator. “They want a broad tax on services. Everything from bank transactions to haircuts to movie tickets, and everything in between. This will not work.”

Runner says “California’s hard-working families cannot afford higher taxes,” a view that is supported by the state’s leading taxpayer organization.

“‘Tax reform’ which imposes a net tax increase of $10 billion isn’t tax reform at all,”
says Jon Coupal, president of the Howard Jarvis Taxpayers Association. “It is an insult to working Californians.”

Revenue for schools, local government

Hertzberg believes California needs a permanent solution to raise revenue when Proposition 30, a temporary sales and income tax increase of $7 billion passed by voters in 2012, begins to expire next year.

“We must once again provide Californians with the opportunity to thrive in the 21st century global economy beyond temporary solutions like Prop. 30,” he said.

SB8 would allocate:

  • $3 billion to K-14 education, which would go toward rebuilding classrooms and saving for teachers pension fund demands;
  • $2 billion to higher education, which would be split between the University of California and the California State University systems;
  • $3 billion to local governments, which could go towards “additional public safety, parks, libraries or local development” but will be left to “local governments to best meet the specific needs of their particular communities”;
  • $2 billion to low-income families in the form of a new earned income tax credit to “offset the burden of proposed sales and use tax on services”

It also opens the door to “altering” the corporate and personal income tax codes, possibly cutting their tax rates. However, in addition to providing few specifics, Hertzberg says those changes would be delayed.

“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,” Hertzberg wrote in a piece co-authored with Edward D. Kleinbard, a USC law professor, and Laura Tyson, a business school professor at the University of California, Berkeley and chair of the U.S. President’s Council of Economic Advisers.

Most small businesses won’t be spared

Unlike past attempts to tax services, Hertzberg has embraced an expansive tax base with limited exclusions for health care and education services as well as businesses with less than $100,000 in gross sales.

Lawyers, Cagle, July 27, 2013“Small businesses, like plumbing contractors, auto repair shops, and restaurants account for more than 90 percent of the state’s businesses and well over a third of all jobs,” Hertzberg said. “They are a key rung on the ladder of upward mobility.”

Yet, those small businesses are likely to be hit with the new sales tax on services. According to the U.S. Small Business Administration, the two most widely used size standards are “500 employees for most manufacturing and mining industries and $7.5 million in average annual receipts for many nonmanufacturing industries.” Other industry specific size-standards are:

  • Legal services — $11 million in average annual receipts;
  • Accounting and related services — $20.5 million in average annual receipt;s
  • Architectural services — $7.5 million in average annual receipts;
  • Engineering, surveying and mapping services — $15 million in average annual receipts;
  • Specialized design services – $7.5 million in average annual receipts.

According to a 2011 policy paper published by the California Budget Project, which generally favored expanding the sales tax to services, “[A]t the height of the Great Depression, policymakers feared taxing services, viewing it as a tax on labor that would discourage employment.”

SB8: Chance of passing?

What are the bill’s chances of advancing?

As with most other bills, the first hearing on SB8 has yet to be scheduled. CalWatchdog.com reached out to half a dozen Republican state lawmakers for their reaction to the $10 billion tax increase, several of whom had yet to read the bill. None was willing to comment.

“To be clear, this is not tax reform,” stressed Runner, the former GOP state lawmaker now at the state tax agency. “It is a massive tax increase.”

This article was originally published on CalWatchdog.com

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