Billionaire-Led Committee Proposes California Tax Hikes

LOS ANGELES — A 16-member California committee led by three billionaires and high-profile former politicians plans to put on the November 2012 ballot two initiatives proposing tax reform that would result in $10 billion of additional annual tax revenue.

The billionaires on the Think Long Committee — Nicolas Berggruen, Google chairman Eric Schmidt, and Los Angeles philanthropist Eli Broad — are joined by former secretaries of state George Shultz and Condoleezza Rice, former California governor Gray Davis and Los Angeles labor activist Maria Elena Durazo.

Formed a year ago by the Nicolas Berggruen Institute, the committee released its 24-page “Blueprint to Renew California” on Nov. 21 in hopes of fostering debate to update and modernize the state’s broken system of governance.

Berggruen has pledged $20 million to back the two initiatives. He is chairman of Berggruen Holdings, an international private investment company.

The recommendations includeestablishing a rainy-day reserve fund, multi-year budgeting, two-year legislative sessions with one year dedicated to oversight, transparency on initiative funding, K-12 school reform, and speeding up regulatory approval to spur job creation.

“The committee has shown that difficult bipartisan compromise can be reached if politics is set aside and the public interest is put first,” Berggruen said in the report.

Under the plan, a sales tax on goods would be reduced from 5% to 4.5%, but a 5% sales tax would be implemented on all services except health care and education starting in July 2013.

The tax hike would boost state revenues by about 11% starting in 2013-14. The money would first be used to retire $4.3 billion of outstanding debt remaining as of 2013-14 from the 2005 issuance of economic recovery bonds. After the debt is paid down, the increase would later go toward K-12 schools, higher education and local governments.

The committee deemed paying back the debt a top priority because of the fiscal strain the debt burden creates, the precarious credit markets and the need to improve the state’s credit rating, said Dawn Nakagawa, the institute’s executive director.

The committee’s plan would also simplify the personal income tax system in 2014, charging no tax on income up to $45,000 for joint filers; 2% on income between $45,000 and $95,000, 7.5% on income above $95,000 and 8.5% on income over $1 million. Today’s top marginal rate is 10.3%, on income over $1 million, though single taxpayers hit the 9.3% bracket at $48,029 in taxable income. The Think Long proposals call for all personal income tax deductions to be eliminated except those on mortgage interest, property taxes, charitable donations, and research and development.

Nakagawa said she expects the committee’s proposed tax increases to create the most controversy. But the panel felt a tax increase coupled with changes to the tax structure was the only way to deal with the state’s budgetary volatility fueled by the state’s dependence on income taxes for a majority of revenues, she said.

California Forward, a three-year-old research group dedicated to reforming the state government and its budget process in particular, shared its analysis with the committee.

“The folks at Think Long Committee saw that we were exploring some of the same issues,” said Jim Mayer, executive director of California Forward. “We’ve tried the method being used by Think Long of filling a room full of really smart people to come up with solutions, and it can be really effective.”

California Forward is planning its own 2012 ballot initiative. The proposal would establish performance-based budgeting, set “pay-go” rules requiring new programs to include a source of funding, and attempt to curb backroom lawmaking by requiring bills to be public at least three days before a vote.

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