The Mercury News reports that on Friday (12/2/11), Governor Brown may propose sales and income tax rate increases to address continuing budget problems. The income tax rate increase would likely be for individuals with over $250,000 of income. ["Gov. Jerry Brown to add income tax increases to budget plan" by Harmon, 12/1/11]
Expected budget shortfalls are $4 billion for the current year and $13 billion for next year.
These are both unfortunate proposals. Some problems:
- Our sales tax rate is already too high relative to other states and for meeting the equity principle. The base should be broadened rather than increase the rate.
- Our personal income tax is volatile. That problem is exacerbated with even higher rates.
There are other solutions:
- Broaden the sales tax base to include digital goods and services purchased by consumers (not by businesses) (exclude non-elective medical services)
- Enact an oil severance tax.
- Increase the excise tax on gasoline.
- Move to only having a single sales factor apportionment formula.
- Reduce tax expenditures, such as the interest deduction for a debt on a second home or a mortgage greater than $500,000; phase-in the changes.
What do you think?
