Thoroughly Modern Bob – Coming to a Legislature Near You!

PERSPECTIVE-Thoroughly Modern Millie was a Tony Award winner. State Senator Bob Hertzberg is rolling out his own sequel. The only problem is the production cost. 

Actually, the real problem is we will be the ones bankrolling it if Bob gets the green light. It is the most expensive tax scam concocted, more than California HSR. 

I’m talking about SB-8. Bob’s name for it is the Upward Mobility Act.  Who can’t like something with a name like that? Leo Bloom and Max Bialystock would be proud of the deception used to promote it. 

Hertzberg claims it is about “modernizing” our tax system, to align it with our service-sector dominated economy of today. He correctly points out that the current approach to taxation was developed back when the goods-producing sector (manufacturing, mining and agriculture) was the revenue driver. 

However, his modernization logic is irrelevant and baseless. 

Service providers and their counterparts in the goods sector pay income taxes, as they always have. A dollar of net income counts the same for a service sector firm or provider as it does for a manufacturer, mining operator or farmer. It always has. The size of each broad industry segment in relation to the other does not impact total income. Income, from whatever the source, is fungible, just like money. 

Bob’s energy would be better utilized if he led the charge to cull tax breaks and government programs that have outlived their usefulness, as well as tackle the state’s very expensive employee compensation and benefits. 

So why is he blowing smoke by falsely correlating the objective of SB-8 with the ever-changing nature of the economy? 

Because he wants your money: $10 billion more per year of it. No matter the noble purposes he has in mind for the additional taxes, it is going to cost a large segment of the population big time. 

Part of the increase, perhaps a big chunk, will come from levying a sales tax on services.  

No matter how you cut it, it will disproportionately burden middle income taxpayers, who would pay it on vital services such as insurance, tax preparation, legal costs to defend themselves in court, communications, car repairs … you name it.  It is not too different in concept from the Stamp Act of 1765.  

The sales tax rate has more than doubled since 1962. Let’s make an already regressive tax even more onerous by applying it to everyday services! 

But wait! 

Bob said there would be a reduction in income taxes across the board. 

Let’s see – half of the state’s income tax revenue is paid by the top 1 percent of earners, according to the state’s Legislative Analyst’s Office, very progressive to say the least. Perhaps Bob will reduce rates for middle-income taxpayers much more than for the wealthy, but even he recognizes the dangerous volatility associated with relying on the wealthiest segment to carry most of the income tax load. Such a move would magnify that dependence. On the flip side, a proportional cut to all brackets would greatly diminish income tax paid by the wealthiest. 

No matter what, middle- and low- income earners, who pay relatively little personal income tax today, stand to benefit the least from an income tax cut. They have far more to lose than gain with SB-8’s strategy. 

According to an article in the Sacramento Business Journal, Governor Brown expressed reservations about SB-8:  “Politically, the idea of applying the sales tax rate to professional services would look like an attempt to ‘burden the ordinary folks.’ The plan ‘may be logical with some green-eye-shaded accountants, but I don’t know that from the political point of view that is very viable.’” 

In response, Sen. Hertzberg said the governor had not seen the completed tax proposal and he thinks Brown would change his mind. “People are making assumptions on limited information and it’s just not accurate. The governor is a brilliant guy…I think he will like the proposal when he sees what it will look like.” 

If anyone is to be blamed for limited information, it is the senator himself. Hertzberg introduced the bill back in December 2014. That’s seven months ago, sufficient time to share with the public its criteria and mechanism….and maybe even an estimate summarizing how much of the $10 billion per year each segment of the population could be expected to bear. And he hasn’t even briefed the governor despite the wide-ranging implications of the bill? 

He is behaving like a car salesman who withholds negative information about the product in hopes of inducing the customer to sign on the dotted line. 

At least there is a lemon law providing some degree of protection for the customer who buys a shiny new car. 

If SB-8 becomes law, good luck on getting relief. 

SB-8 would be the largest permanent tax increase in the history of the state. It would require a voter initiative for final approval, but do not expect transparency in how it would be worded in the ballot. After all, it is all about modernization. 

(Paul Hatfield is a CPA and serves as Presidentof the Valley Village Homeowners Association. Heblogs at Village to Village and contributes to CityWatch. The views presented are those of Mr. Hatfield and his alone. They should not be construed to represent the opinions of the VVHA or the residents of Valley Village, individually or as a group. He can be reached at: [email protected]. )

–cw

 

CityWatch

Vol 13 Issue 61

Pub: Jul 28, 2015