Capitol Alert: Think Long coalition to propose California tax overhaul

By Torey Van Oot and Kevin Yamamura

A coalition backed by some of the biggest names in California politics and a billionaire financier is readying for the ballot a sweeping overhaul of the Golden State's tax system.

The proposed initiative is part of a series of recommendations for "remedying what ails California governance" drafted by Think Long Committee for California, an independent coalition focused on long-term fixes for Golden State governance.

The committee's 23-page report, set to be released Monday, is the product of more than a year of collaboration by some of California's most influential political minds. The bipartisan work group included former governors, legislative leaders, and U.S. secretaries of state, seasoned state finance directors and leaders in business and labor unions.

"This is one of those things where people really didn't have any interest, they were just trying to find a vision to fix California. Everyone was focused on the long term," said former Assembly Speaker Bob Hertzberg, a member of the committee. "As Washington is in gridlock, maybe California can lead the way again by showing that we know how to fix things."

Central to the recommendations are two proposed ballot measures that the committee's chairman, billionaire investor Nicolas Berggruen, has pledged to back with at least $20 million of his own fortune.

One proposed initiative would overhaul of the state's tax system to raise an additional $10 billion annually for the state budget, according to a draft of the plan obtained by The Bee. The biggest change: Californians would pay sales tax on all services except health care and education starting in July 2013.

The tax hike would boost state revenues by about 11 percent starting in 2013-14. The money would help retire debt in the first year and later go toward K-12 schools, higher education and local governments.

The state would also simplify the personal income tax system in 2014, charging no tax on income up to $45,000 for joint filers; 2 percent on income between $45,000 and $95,000; and 7.5 percent on income above $95,000.

The state would eliminate all personal income tax deductions except those on mortgage interest, property taxes, charitable donations and research and development.
The sales tax rate on goods would drop by half a percentage point.

On average, taxpayers at every income level would pay more due to the new service tax. Households with adjusted income below $20,000 would pay $71 more annually, though they may be eligible for a sales tax rebate.

The plan lowers the corporate tax rate from 8.84 percent to 7 percent. It also raises taxes on out-of-state firms by requiring them to pay based on their share of sales in California.

The proposal faces a potential land mine: the state's powerful education lobby. The plan would eliminate a constitutional requirement that the state must repay schools when imposing certain budget cuts. It would also relieve the state of an existing $10 billion obligation to schools.