After a year of deliberation and consultation with an array of experts, as well as state and local officials (see list in Appendix), the Think Long Committee for California proposes the following set of integrated structural reforms to “reboot” California’s dysfunctional democracy by installing a new civic software.

While setting in place a long-term framework for good governance over the coming decades, our plan would:

• Create a positive business environment for job creation
• Reduce the personal income tax across the board while retaining California’s progressive rates
• Fund education by an additional $5 billion while fostering reform
• Provide $2.5 billion to the University of California and California State University systems to keep higher education within reach of California’s families
• Empower county governments and help reduce public safety costs by providing $1.5 billion in additional funding
• Provide $1 billion to California cities in block grants to meet their local needs
• Start paying down the state’s “wall of debt” and stabilizing the boom-and-bust budget cycle
• Give Californians real power to make government accountable
• Improve the process for making long-term economic policy

Our integrated set of recommendations range from common sense practices such as a Rainy Day reserve fund to multi-year budgeting; two-year legislative sessions with one year dedicated to oversight; transparency on initiative funding; K-12 school reform; aligning the skills and educational outcomes of California’s master plan institutions with the needs of our cutting edge industry; and speeding up regulatory approval to foster job creation.

But the core of our proposal has three parts:

* LOCAL EMPOWERMENT. Returning decisionmaking power and resources when appropriate from Sacramento to localities and regions where the real economy functions and government is closer to the people – and thus more responsive, flexible and accountable. By generating $1.5 billion annually for counties to help cover the costs of realigned public safety responsibilities, our plan will help reduce the high costs associated with our state prisons. One billion annually would also be dedicated to cities as block grants for infrastructure or other locally determined needs.

* AN INDEPENDENT CITIZEN’S WATCHDOG. Creating an independent watchdog for the long-term public interest as a counterbalance to the short-term mentality and special interest political culture that dominates Sacramento. This impartial and non-partisan Citizens Council for Government Accountability, which would be empowered to place initiatives directly on the ballot for public approval, will ensure that the public’s priorities – excellence in education, world-class infrastructure, a sustained quality of life, opportunities for good jobs and the strengthening of a vibrant middle class through boosting the state’s competitiveness in today’s global economy – remain at the top of the public policy agenda over the long-term. As a non-political quality-control body, the Citizens Council will ensure that California taxpayers get their “return on investment.”

* A MODERN, BROAD-BASED TAX SYSTEM. Updating California’s tax system to mirror the real composition of our modern service and information economy and provide a stable, broad-based tax system that is sustainable over the long term.

While maintaining California’s progressive income tax structure, we would reduce rates for every bracket and reduce the sales tax on goods from 5% to 4.5% while broadening the sales tax at a 5% rate to apply to services, which are more discretionary. Education and medical care would be exempted.

Those with low incomes would receive a sales tax rebate. Those earning $45,000 and under would pay zero income taxes. The working middle class with incomes up to $95,000 would pay only 2%. The homeowners’ exemption and renters’ credit would be doubled. Those making above that amount would pay 7.5%. Because of the 1% surcharge for mental health on millionaires, they would pay a top rate of 8.5%.

A family with income of $90,000, which would have paid $1,449 in personal income taxes under the current system, would now pay $832 – a more than 40% reduction in their state personal income tax. Overall, the reform will maintain California’s progressive tax system. Households with Adjusted Gross Income of less than $20,000 per year would pay an average of $71 more in direct and indirect state taxes, while those earning more than $1 million would pay an average of $11,478.

This combination of cutting the personal income tax and broadening the tax base will help stabilize the boom and bust cycle of the budget while generating $10 billion in new revenues annually to start paying down the state’s “wall of debt,” and provide funding for K-14 schools, for CalState and the University of California and for local public safety and other local needs.

Small and medium-sized business proprietorships, “S” corporations and LLC’s are the backbone of the California economy. Unlike the large “C” corporations, profits and losses are “passed through” and taxed at the personal income tax rate. Therefore, a PIT cut will boost job-creating business prospects. For example, a business with a taxable income of $480,000 that would have paid $39,452 in income taxes under the current system will pay $33,114 under the proposed system.

Further, the mandatory single sales factor would be imposed on corporations while, at the same time, California’s corporate tax, one of the highest in the nation, would be reduced to make it competitive with other states and foster an improved business climate.

via Think Long Committee for California | Download the Full Report | Appendix I: Think Long Committee Presenters & Participants | Appendix II: California’s Budget Woes – How is Our Fiscal Health? | Appendix III: Jobs, Infrastructure & the Workforce

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