From today’s Wall Street Journal Political Diary E-mail…
Terminating the California Income Tax
California’s Arnold Schwarzenegger shocked nearly everyone in Sacramento last week when he endorsed a flat tax for the state. Or did he? His exact statement was that a "15% straight tax" is "the radical, daring kind of a proposal that I want to see on the table."
Gulp. 15 percent! The top tax rate right now is only 10.5%. When I asked the governor’s press office about the statement, they assured me, "The governor has not decided on a specific rate. He has only said he likes the concept of a flat tax."
To make sure the point was entirely clarified, Mr. Schwarzenegger sent me an email on Thursday, in which he explained: "The way we collect revenues in California is so broken that we must look at every bold proposal out there, no matter how daring or radical — including the idea of a flat tax. California’s budget is so volatile because the top 1 percent of taxpayers provide 50 percent of all our personal income tax revenues, so we set up a commission to give us ideas, and a flat tax is absolutely an idea that must be on the table with many others."
This week the governor’s tax reform commission, headed by Gerald Parsky, will preview some of the recommendations to be released in a full report in July. Mr. Parsky confirmed in a conversation that a "tax rate of about 6% with few deductions could replace the steep tax rates we have now." That’s a lot lower than 15% — thank goodness. Mr. Parsky also said that "even many Democrats now concede that the tax system is flawed by imposing so much of the burden on the richest 1% of Californians."
We have also learned the state may try to replace its state business income tax with a broad based business transfer tax of about 6%. This would bring California down from No.2 to about the middle of the pack in terms of how heavily the state taxes business. That makes sense since California has been chasing out its rich people and employers who pay so much of its taxes.
Dan Logue, a Republican assemblyman from Northern California who is heading up a task force on taxes, tells me that the tax system is so "harmful to business" that states like Colorado are now advertising their low business taxes of less than 5% to get businesses to relocate. "Our tax system is killing our state," he complains. The good news is that the Terminator now seems to agree with him.
— Stephen Moore