A good friend of mine sent me a short summary on the proposed changes in the California Tax Code. My thoughts below:
A brief explanation of the BNRT tax. It's just like a value added tax. One thing I am worried about is the implementation of this. How easy will it be for businesses to cheat? It looks to me like it's going to be far easier for companies to over inflate costs to offset profits using the VAT then it is for them to manipulate revenues. This tax is one that is designed to attack the profits of the businesses that fall within it's battle zone. No doubt that those costs will be transferred right back to the consumer with no net gain and possibly a net loss. However, the nature of the incentives (reduction in sales tax) seem to make it something that the public will like.
I give this commission the benefit of the doubt in assuming that this new tax will increase will preform as intended to increase the revenue stream while making it more stable. I agree with the tax on the grounds that it's not a regressive as a general sales tax. The businesses that will be taxed the most are high profit entities, and I think there is an inverse relationship between the income of an individual and their consumption of high profit goods or services.
As for some of the other recommendations: Reducing the number of tax brackets will have a negative effect only on those who make less the $7,200, and in accordance with conservative views, will greatly benefit those with high incomes. This will hopefully spur investment by the rich into California business which will have the external, although small, benefit of increasing tax incomes by the state, in turn reducing the net loss.
Overall, this newly proposed tax structure calls for the transfer of approximately $64 billion, or 49.2%, of the current tax income directly to CA businesses and indirectly to consumers. As long as the necessities remain tax free, this I see this as an overall benefit to society and a step in the direction of overall equity.
I don't have the summary but here is a link to the entire Report from the Commission on the 21st Century Economy.
Subscribe to:
Post Comments (Atom)
John, here are some of my concerns regarding the proposed changes to the California tax code.
ReplyDeleteFirst, the Europeans favor VAT because it is a hidden tax. Individual persons do not see a change in their tax rates in the forms which they have to fill out or statements they receive. They do not see changes in their sales receipts marked “tax” when they buy something. Instead the tax takes place primarily in the purchase of intermediate goods and raw resources that the public does not think about. It is very easy for lawmakers to increase a VAT while it is very difficult for lawmakers to increase more visible taxes such as income tax, excise tax, or property tax.
Second, this tax is very regressive. As you have noted the group that is hit hardest by this tax is in the lowest income bracket. Actually, I believe that the group that is hardest hit is the middle income group that represents the majority of consumers. Poor people receive government transfers, and rich people do not consume (they save), so both escaped most of the taxation. Provided the government spends primarily on public goods and externalities, taxation based upon ability to pay maximizes the social good. Public goods are non-rival and non-excludable. Examples of public goods are the transportation system, the law enforcement system, and recreational facilities. Externalities involve benefits and costs to thrid parties of transactions. Examples of programs with externalities include pollution abatement, public health, and education. If the government is not spending on programs that maximize the social good, then probably the government should not be doing that spending, and the programs should be cut.
Finally, the greater the bureaucracy between the taxpayer and the citizen, both who are in fact the same person, the less benefit that person will probably see. Most government spending takes place at the local level. For that reason most government taxation should be taking place at the local level, and that money should not have to go to the state or federal governments before it returns back to the city and county governments. California has already made a significant mistake with Proposition 13 in this regard. Because California now does not collect very much property tax, programs such as schools must rely on state funding. That funding flows through the state bureaucracy, and along the way much of it gets diluted or diverged.
This proposal does not address the tax probems in Calfiornia, but hides them from the tax payer.
Gilbert