Taxing changes: state controller releases framework for tax reform.

• Author: Fox, Jason
• Position: Capitol Beat

In 2015, State Controller Betty Yee convened a council of economic advisers on tax reform for a comprehensive review of part lax pokey reform efforts in California and to begin to develop a broad, contextual framework for future tax reform discussions.

The report notes that it has been 81 yean since the last, large-scale tax reform in California and that substantial change in the economy across the board calls for an analysis of the current tax Structure. You can read the full Comprehensive Tax Reform in California: A Contextual Framework report al: http://sco. ca.gov/co_cea_contextual_framework.html.

The controller's report begins with a review of California's tax structure, including an analysis of volatility, predictability, sufficiency and progressivity.

California's tax system heavily relics on personal income lax, which generated 69.5 percent of the general fund revenues for the 2016-17 fiscal year. The report conveyed that this percentage, coupled with California's progressive capital gains tax, leads to a volatile tax structure that shills with the business climate.

In 2014, California voters approved Prop 2, The Rainy Day Fund Act, as a way to moderate this swing in spending associated with the capital gains revenue. The controller's report stressed that while the Rainy Day Fund is helpful in alleviating spending after spikes in slate revenue occur, legislators still feet pressure from various stakeholders to tap into the revenue accrued during these spikes to reduce taxes or expand programs that were cut in the past.

The council also assessed the potential outcome if the sales and use tax was expanded to cover labor and services, in addition to tangible goods that are subject to this tax. The study uses 2011 data collected by the Board of Equalization to estimate that if the Legislature imposed the full sales tax rate on services at approximately 8.42 percent of receipts, the sales and use tax would generate more than $120 billion annually with professional, scientific and technical services being the main revenue sourer at $681.7 million (20.6 percent) of that total.

Accounting, tax preparation, bookkeeping and payroll services would account for $79.3 million of that revenue.

Further exploring an expansion of the Saks lax, the report reviewed specific sales lax on services proposals, such as SB 8 and SB 1445 by Sen. Hertzberg The report analyzed how the proposals would impact the progressivity, predictability and volatility, as...