For Immediate Release
July 28, 2003
California – Tax Policy Commission Debates Flat Tax System
Charged with the challenge of simplifying and restructuring California’s tax system, the Commission on Tax Policy in the New Economy discussed a flat tax proposal, one of 12 options the Committee is considering.
The current tax system would be replaced with two broad-based, low rate taxes – one on personal income growth and one on business value added. Proponents of this idea argue that instead of raising taxes to deal with the budget crisis, the state should broaden the tax base and reduce tax rates.
Under the current proposal, sin taxes would continue to be imposed (tax on cigarettes, alcohol, gambling, etc.). Taxes on income, sales, motor fuels, and property would be replaced or phased out. Replacing business taxes would be a simple, value-added tax based on sales less purchases from other businesses. Individuals would pay a tax based on all personal income, with minimal deductions (charitable contributions, home mortgage interest, and transfer payments, i.e., unemployment insurance).
Proponents claim that the flat tax system would have generated $27 billion more for fiscal years 2000 – 2004 than the actual revenues generated under the current system for the same period.
On the other hand, opponents argue the double taxation of wages, which would be taxable to individuals, but not deductible by businesses. Winners under the flat tax system in its current form would be property owners and high-income taxpayers, with the losers being small businesses and low-income taxpayers.
If you would like additional information on this topic or have any questions, please contact James Privett, Regional Vice President - Sales & Use Tax Group at (615) 373-8373. E-mail jprivett@thesaltgroup.com
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