Tax Review Results Prove Irrelevant to Education Funding Cuts

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Analysis of the Commission on the Twenty First Century Economy

University News Editor Angelica Dongallo talks to reporter Jolene Xie about the proposed state tax system restructuring.

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The Commission on the 21st Century Economy, created by Gov. Arnold Schwarzenegger in an attempt to find ways to streamline and stabilize the California tax system, released its findings Tuesday.

The goal of the commission was to evaluate and propose revisions of California's tax system. Hopes were high that the findings would increase California's cash flow. However, many legislators said they were disappointed to find the commission to be tax-neutral and therefore irrelevant to California's public education funding crisis, according to Sen. Loni Hancock, D-Oakland.

"Many of us knew what the recommendations of the commission were likely to be," she said. "There are still some major disappointments in it being tax-neutral. ... California is (one of the) last in the nation for funding for education."

According to the report, the commission's recommendations would only reorganize the internal structure of California's revenue system rather than suggest measures to raise or lower taxes.

The main five proposed ideas, summarized in a statement published yesterday, included reducing the personal income tax and eliminating the state sales tax in most circumstances.

Other proposed measures included reducing corporate and business taxes as well as creating an independent tax dispute forum for resolving disputes between individuals and the state.

The measures may meet opposition in the legislature because the decrease in taxes on businesses may shift more of the tax burden onto the middle class if other measures are not created to raise revenue, Hancock said.

The recommendations only need a simple majority to pass the legislature and reach Schwarzenegger's desk.

The report also recommended strengthening the state's Rainy Day Reserve Fund, a measure that would require a change in the state constitution.

But a major source of the state's financial woes was not addressed in the report, Hancock said.

"It takes a simple majority to lower taxes and takes a two-thirds majority to raise," she said. "That's why taxes have decreased in the last few years. We cut in good years and won't raise in bad."

Proposition 13, passed in 1978, capped property tax rates and instituted the two-thirds majority rule in order for the legislature to pass tax increases.

But this year's difficulty in finding a solution for the state financial crisis has resulted in greater cooperation among Democratic and Republican legislators, which may help the reports' recommendations be adopted, Hancock said.

"My understanding is that both elected liberal and conservation officials have expressed great concerns (with the budget)," she said.


Contact Jolene Xie at [email protected]

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