FUNDING THE FUTURE OF CALIFORNIA: WHERE WILL THE REVENUE COME FROM? Lenny Goldberg California Tax Reform Association , for Reclaim Higher Education

A new narrative on taxation  The old:  “price to pay for civilized society”/burden that must be borne (D)  Instrument of oppression (R)  Lower priority for activists than issues/services/programs  Too technical to engage politically  The new:  Fighting inequality: taxes are the front line  Piketty: “Taxation is not a technical matter. It is preeminently a political and philosophical issue, perhaps the most important of all political issues. Without taxes, society has no common destiny, and collective action is impossible…Precisely what concrete form taxes take is therefore the crux of political conflict in any society.”  Need broad-based engagement on tax policy itself

California: Current discussion of potential revenues for…  State budget and schools: Prop 30 (top brackets of income tax, sales tax) continuation  Cities, counties, schools, community colleges and infrastructure: Commercial property tax reform  Roads and transportation: gas tax, local sales taxes, cap and trade revenue  Healthcare: tobacco tax, managed care taxes  Higher education: oil severance tax, Prop 30  Environment: cap and trade revenue  Broader tax reform and revenue: taxing services

State tax legacy of Prop. 13: 2/3 vote requirement  Oil severance: $1-2 billion  Higher Education/tuition vs Texas  Possible ballot measure 2016?  Received strong majorities for years: victim of 2/3  Tobacco/managed care tax: $1-2 billion  Health care and First Five  Possible ballot measure  Again, strong majorities in legislature  Gas tax: $2-3 billion  Roads, transportation  Strong majorities for increases, business/developer support but no 2/3  Cap and Trade Revenue: fee (majority)  Must be spent on programs related to climate change (e.g. transit)

Prop. 30 extension  Again, strong majority in the legislature, no 2/3  Two proposals for 2016 ballot  Prop 30: brackets up to 13.3% for over $1 million through 2018, plus ¼ cent sales tax (ends 2016)  New: extend brackets, add 1% over $5m (one proposal)  $6 billion annually  “California is back!”  Evidence re: millionaires: economy, stock market

Taxing services: fair, reliable tax base?  Broaden sales tax base to virtually all transactions  Attorneys, accountants, architects, advertising… consultants…programmers, etc  Digital downloads in all forms, and telecom services (Internet?)  Admissions and Hotels/Uber and Airbnb  Labor services vs. intangibles  Raise huge revenues ($30 billion +--double current sales tax) and… Lower sales tax rate Lower income tax rates plus EITC Lower and/or eliminate corporation tax Raise net $10 billion for state and local government  Rationale:  income tax volatility and over-dependence (Income tax = 70% of state general fund)  Better reflection of modern economy

Commercial property tax reform: system failure, movement for change  Most broken part of tax system: would never have been invented and cannot be defended; accidental by-product of Prop 13  Loophole-ridden law: “change of ownership” works for residences, not for complex commercial properties or corporations  Counter-productive economics: taxes new investment instead of windfalls, bad for economic development  Bad land use: promotes speculation and sprawl, the opposite of smart growth necessary for climate change  Fiscal failure: property tax fails to keep up with growth for counties, schools, infrastructure, shifts property tax share to residential property  Inequality: major beneficiaries are large landowners, wealthy investors, publicly-traded corporations

Burden shift to residential property in 55 of 58 counties: Santa Clara

Benefits of change  $9 billion in revenue for cities, counties schools, community colleges, special districts  Greatly improved land use, regulatory process, infrastructure, transit: environmental and economic benefits  Issues to be addressed: transition after 40 years, small business  Inevitability of reform

What will it take?  Growing coalition: already a good base, needs deepening and broadening  Mitigation of business opposition  Take it local, make it real: deeper public understanding of impacts  Broadened coalition and expanded public discussion--business, environment, students, public safety, etc  Take it to your campuses, engage the discussion