Dan Walters: Will California Democrats use their clout to reform?

dwalters@sacbee.comNovember 9, 2012 

Dan Walters

Darrell Steinberg, the president pro tem of the state Senate, says he wants to use the Democrats' new supermajorities in the Legislature to reform the state's taxation system and the initiative process.

Both certainly need judicious overhauls, but it's very unclear whether Steinberg & Co. are interested in true reform or merely want to advance their ideological agenda and/or solidify their control of California politics.

The devil, to use a shopworn but apt phrase, is in the details.

A time-tested principle of taxation is that it should be applied to a wide base with low rates.

California's sales and income taxes do just the opposite, applying very high rates to very narrow bases, and the state moved further in that direction Tuesday with the passage of Proposition 30.

That makes the state's revenue stream extraordinarily volatile – up one year, down the next – as the economy expands and contracts.

When taxes pour into the state treasury, politicians quickly spend them on new services or selective tax breaks, and when revenue declines, as it inevitably does, the state is left with severe deficits.

The Legislature itself recognized the need for tax stabilization a few years ago, joining with former Gov. Arnold Schwarzenegger to appoint a blue-ribbon tax reform commission. But its members were sharply divided, and its final report – advocating big changes in sales and income taxes to broaden bases and lower rates – was ignored.

As that episode demonstrated, the politics of tax reform are daunting.

Widening the sales tax base to include services brings fierce opposition from the newly affected sectors of the economy, while widening the income tax base could mean lower levies on high-income taxpayers, the target of Proposition 30's boosts, and higher taxes on middle-income Californians.

Steinberg says he wants to explore the base-widening approach, but Gov. Jerry Brown, mindful of the issue's pitfalls, seems uninterested in pursuing reform.

There have been several attempts by the Legislature's majority Democrats to change the initiative process, characterizing them as "reform." But mostly, the proposals would have made it more difficult for conservatives to sponsor ballot measures while leaving liberal groups untouched.

Steinberg talks about making it more difficult for the wealthy to bankroll initiatives, but the only way to do that, probably, would be to ban paid signature-gathering. That would have minimal impact on unions, which could use their members to qualify measures.

Taxes and the initiative process are only two of many aspects of California's politics that need reform, but making changes that are both fair and acceptable to the state's very diverse and often adversarial stakeholders and voters is a very tricky business.

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