The proponent of a constitutional amendment that would overhaul California’s tax system by abolishing or reducing taxes on earned incomes, commerce and industry has received authorization from state officials to solicit signatures needed to place the measure on next November’s statewide ballot.
The measure, which would replace most existing state and local taxes with a tax on the market rental value of land, must receive signatures of almost 700,000 registered voters by May 17 to qualify for the ballot, according to an announcement by the California secretary of state.
The author of the initiative amendment, Southern California attorney Frank D. Walker, 58, of Chula Vista, has said his proposed reform would eliminate the state income tax for individuals with annual incomes below $150,000 and cap the state income tax rate at 8 percent. Additionally, he said, the proposal abolishes the sales tax, except on tobacco products, alcoholic beverages and motor fuels, and also does away with the corporations tax, which is California’s corporate income tax.
Walker said the measure repeals the current property tax and establishes a tax of 75 percent on the fair market monthly rental value of non-exempt land, irrespective of the value of buildings, houses, other manmade improvements and growing crops, none of which will be taxed. The measure allows taxpayers to take a credit against personal income taxes for land-rent taxes paid in the same year.
Walker said the proposal allows homeowners age 60 or older to defer any land-rent tax in excess of their last annual regular property tax bill until 2020 or until their home is sold or transferred, whichever comes first. The amendment also allows California to enact a severance tax on oil, minerals and timber, Walker said.
The Attorney General’s official title and summary for the measure says:
“CHANGES CALIFORNIA’S INCOME AND PROPERTY TAX LAWS. INITIATIVE CONSTITUTIONAL AMENDMENT. Repeals the two-thirds vote requirements to raise state or local taxes. Repeals Proposition 13’s caps on property taxes. Excludes first $150,000 of personal income from taxation. Imposes maximum 8% marginal tax rate on personal income above $150,000. Allows taxpayers to take a credit against personal income taxes for property taxes paid in the same year. Imposes taxes on land having rental value. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: Replaces virtually all existing state and local tax revenues (about $170 billion) with a roughly equivalent amount from a new land tax and other taxes. Major revenue gains or losses could result depending on how the measure is implemented by the state.”
If passed, the measure would take effect July 1, 2011, Walker said.
Walker said he is establishing an organization called Prosper California “to support ballot measures in California which eliminate taxes that reduce productive activity and which instead raise public revenue by collecting land rent or taxing the rental value of land.”
Walker said Prosper California will be “an umbrella organization whose purpose transcends any specific initiative or ballot measure.” The organization’s website at www.ProsperCalifornia.com is promoting Walker’s amendment, which it calls the “California Tax Reform Initiative.”
According to that website, “Because the ownership of our state’s most valuable land is heavily concentrated into the hands of a relatively small number of Californians and non-residents (often corporations whose owners mostly reside outside of California), the large majority of Californians will pay substantially less in taxes under the proposed new system than they do now. Californians who rent will benefit hugely under this reform as will a high percentage of working homeowners, especially those households with two wage-earners.”
Reacting to the release of the official summary, Walker said, “I am pleased that the California Department of Finance and the Legislative Analyst have projected that the proposed system based on collecting land rent for public revenue will raise roughly the same amount as existing state and local taxes, or approximately $170 billion annually. As the fiscal watchdogs for the State of California, these agencies are very cautious in making projections.
“This official analysis does not take into consideration, however, the increase in the rental value of California land that will occur as more than $100 billion in existing taxes which discourage productive activity in California are eliminated,” Walker said. “Such an enormous reduction in taxes on producers of goods and services will result in a substantial increase in the demand for land in California by productive enterprise, and that, in turn, will drive up total land rent since land in this state is fixed in supply. The people of California will receive [as public revenue] 75 percent of this increase in the rental value of land.
“Accordingly, I am confident that the new public revenue system will quickly be providing much more than $170 billion annually in state and local revenue,” Walker said.
“The official summary prepared by the Attorney General’s office misses the mark in some important respects,” Walker continued. “Although the Department of Finance and the Legislative Analyst correctly note in their analysis that this initiative replaces virtually all existing state and local taxes, the Attorney General’s summary fails to mention that the initiative largely eliminates or abolishes the sales tax and the corporations tax, which are currently two of California’s major revenue sources.”
Walker pointed out that, “The Attorney General’s summary begins by asserting that the initiative repeals the requirement of a two-thirds vote to raise state or local taxes. The summary fails to explain, however, that the initiative itself severely limits the state and local taxes which may be imposed in California.
“The initiative mandates a tax on the rental value of land at a fixed rate and caps the state personal income tax at a maximum rate of 8 percent on income above the $150,000 annual exemption, so neither the legislature nor local voters may increase those taxes,” Walker said. “The only other taxes which may be levied in California under the initiative are taxes on alcohol, tobacco, marijuana and motor fuels and severance taxes on hydrocarbon resources, timber and minerals. Thus, the ability of both the legislature and local voters to raise taxes even by a simple majority vote is very limited because the scope of taxation permitted by the initiative is so narrow.”
The secretary of state’s announcement points out that “The Attorney General prepares the legal title and summary that is required to appear on initiative petitions.” California’s attorney general is former governor Edmund G. (Jerry) Brown, Jr., who aspires to be elected governor again next year in the same election in which Walker’s initiative constitutional amendment may be on the ballot.
In an article headlined “Jerry Brown wants to be a back-to-basics governor“, George Skelton reported in the Los Angeles Times last April:
Brown was governor from 1975 to 1983. He succeeded Ronald Reagan, who had ousted his father, Pat Brown, from the governor’s office.
Why would anybody want to be governor again, particularly at his age? Brown just turned 71.
The short answer is the obvious one: Politics and public policy are his passion. It’s in the bloodline. In all, he has held five elective offices, including Los Angeles Community College trustee, California secretary of state and Oakland mayor, 1998 to 2006.
“I liked being mayor. I liked being governor. I like being attorney general,” Brown told me. “As mayor, I learned about making things happen.”
He didn’t always make things happen as governor — most notably property tax relief. His and the Legislature’s long lollygagging led to passage of Proposition 13, sponsored by apartment owners lobbyist Howard Jarvis. It resulted in substantial property tax reductions but led to fiscal chaos in local and state governments and shifted more responsibility and power to Sacramento.
Any objective chronology of when California governments and schools began to slide downhill begins with implementation of Prop. 13 in 1978.
But Brown says, “I’m not going to advocate messing with 13. That’s a big fat loser.”
If he had it to do over again, the former governor says, he would have created his own property tax initiative and used it to threaten the Legislature into compromise — as Gov. Arnold Schwarzenegger did on workers’ compensation insurance in 2004.
“More relief and simpler,” Brown says, “without all the bells and whistles” — presumably such as Prop. 13’s two-thirds vote requirement for tax increases.
One thing Brown did make happen as governor was collective bargaining for public employees. I asked him whether he’d created a monster.
“Well, they certainly are a formidable force now,” Brown acknowledges, referring to the unions that help bankroll Democratic campaigns. “One cannot be a Democratic candidate without having good relationships with public sector unions. That’s a fact.”
But the unions “are going to have to come around” and help solve the budget crises of state and local governments, Brown says.
Employees have been “asking more of government than the voters can be convinced to finance,” he asserts. “That’s a fundamental problem. They’re going to have to start contributing more” to their own pensions…
Referring to the way he’d govern, Brown continues: “You’ve got to take the world as you find it. You can improve it. But you can’t improve it in ways that require miracles. You do as well as you can. . . .”