Dear Assemblyman Logue.
I just read the article in the Wall Street Journal “Schwarzenegger Gets Radical – Terminating the California Income Tax” that identifies you as the head of a task force on taxes in our great state. Thank you for heading this up!
According to the article, the situation calls for massive tax reform with bold proposals to be considered.
A state version of the FairTax would solve our problems.
In a nutshell, the state version of the FairTax would eliminate all business taxes - Corp. taxes, SDI, UI, (would be funded out of the general fund), personal income taxes, capital gains taxes, and estate taxes. State revenues would be replaced by extending the sales tax to services. As we know, the service sector of our economy is huge. By extending the tax to services, our state will realize a tremendous boost in tax revenues.
Sales Tax is progressive. The more affluent spend more money and, therefore, pay more into the system. The tax is made more progressive and puts family survival 1st through a sales tax prebate provision which provides a monthly payment to every legal California family to untax them on consumption up to the poverty level which I will explain in an example a few paragraphs below.
Transformation to eliminate business taxes, income tax, capital gains tax, and estate taxes accomplishes many key things:
1. By eliminating business taxes and tax compliance costs, California becomes a business tax haven. Where businesses prospers, jobs and prosperity follow. Prosperity is the key to state revenues.
2. California’s economy would be stimulated with massive investment into the business sector.
3. Tax compliance for residents and enforcement by the state become much simpler and much less expensive as well.
4. State residents will be free to create wealth via true productivity vs. divide wealth via punishing taxes and compliance services (CPAs, tax attorneys, etc.)
5. California would broaden the tax base in the service-sector to include tourists, business travelers, and non-legal residents, and legal residents that currently avoid/evade income taxes.
6. In the case of non-legal residents, they would contribute more in taxes but would not qualify for the tax prebate.
For an easy example, let’s say the state sales tax is 10%. The actual sales tax percentage would need to be studied but, for round numbers, let’s use 10%. Remember, this extends to services now which would be a huge new source of revenue. Here are some scenarios:
Senario #1: Family of four earns $100,000 and spends $80,000 in California.
- State tax receipts would be $8,000 ($80,000 @ 10%).
- The poverty-level for the family is $28,000 which puts the tax prebate at $2,800 for the year.
- Net revenues for the state would be $5,200 for this family.
Senario #2: Family of four earns $50,000 and spends $50,000 in California
- Sales tax receipts would be $5,000
- Sales Tax prebate would be $2,800
- Net revenues for the state would be $2,200
Senario #3: Family of four earns $250,000 and spends $150,000 in California
- Sales tax receipts would be $15,000
- Sales Tax prebate would be $2,800
- Net revenue for the state would be $12,200
Considering more affluent scenarios like scenario #3, these families would have home mortgage deductions, and other deductions that would bring their income tax obligation way down.
This is a bold proposal and there is much more to consider than what I put forth in this letter. Remember, though, that competing for businesses and jobs is of utmost importance. Rewarding hard work and innovation is the key and there is nothing that comes close in terms of attracting new business, jobs, and prosperity to our great state.
There are many FairTax enthusiasts in this state (and around the nation). I would welcome further inquiry with regard to this bold, fresh proposal should you and/or your task force have questions.
cc: my blog at http://www.fairtaxnation.com/profiles/blogs/state-version-of-the-fairtax