1. The Budget crisis: Revenues and Strategies Lenny Goldberg California Tax Reform Association www.caltaxreform.org CARA 10/20/09

2. The Trouble We’re In $32 billion in cuts, February and July budgets $8 billion in taxes expire $2 billion in new corporate loopholes take effect Revenue acceleration, expenditure deferral Borrowing and questionable “revenues” Loss of stimulus funds Economic recovery? $10-$20 billion deficits, through 2013

3. Why we’re in trouble

4. Approaching Revenue Fees, collections, majority vote strategy End waste, fraud and abuse in the tax system: Fairly spread the burden Majority vote strategies? Structural change

5. Waste, Fraud and Abuse=$7-8 bil Oil severance: $1 billion Eliminate new, secret corporate loopholes: $1.7-2.5b Eliminate multi-national tax sheltering: $700mil Eliminate enterprise zone breaks: $400 mil Tighten change of ownership for commercial property (statutory): $2 billion+ Strengthen collections (Amazon nexus, abusive tax shelters: $500 million Like kind exchanges of commercial property: $350 mil Limite Subchapter S to small companies: $600 mil.

6. Spread the Burden Fairly: up to $14b *Restore top income tax brackets: $4 billion, $6 billion after recovery (10 and 11% bracket ) *Restore VLF at 1%: $1.3 billion *Broaden sales tax base to commodities mistaken as “services” ( entertainment, admissions, sports): $2-4 billion (higher # includes telecommunications, video, electronic) *Tobacco: $1 billion *Alcohol (10c/drink) $1.4 billion *Soda tax? $1 billion *Marijuana? $1+ billion *(Carbon tax = up to $8 billion)

8. Commission on 21 st Cent Economy Lower taxes on wealthy:-$7 billion for top 1% Eliminate corporation tax = -$10 billion Phase out state share of sales tax Replace with approx $50 billion in “business net receipts tax” – Unknown, untried, attempt at value-added tax – Falls on food, renters, childcare, services – Unknown interstate commerce issues

9. Majority vote: what can be done Collections: $2 billion vetoed by the Governor – Independent contractors – Amazon nexus – Bank records match, etc Fees: $1.4 alcohol, $1b tobacco, soda, others= $2-3billion Revenue: redefine gas tax as fee, replace with oil severance, others: $4-5b Two-step strategy on change of ownership loophole=$2 billion

10. Structural Reform = $8 billion Reassess commercial property: “split roll” – Largest hole in tax system – Bad economics – Loophole-ridden law – Counterproductive fiscal policy – Bad environmentally: speculation and sprawl To cities, counties and schools Current research

11. Structural change: process Majority vote for budget, taxes, vs 2/3 Constitutional Convention Ease restrictions on local taxation Budget reforms/CA Forward Why?....