Proposed tax reform shifts breaks upward

SACRAMENTO Downtown areas across California are nervous about a new tax plan. Business taxes would be calculated much like Europe's /*Value Added Tax*/ (VAT), affecting all industries.

The /*Commission on the 21st Century Economy*/ wants to first simplify personal income tax by shrinking tax brackets to just two categories: those who pay 2.75 percent; another who pay 6.5 percent.

Under the plan, millionaires would save $109,000 a year in taxes, or get a 31-percent tax break, while those making up to $50,000 would save $3 a year or receive a 1.5-percent tax break.

Critics were expecting something different from the much-touted bipartisan group that missed several deadlines to come up with this tax modernization plan.

"Instead, we get this proposal which is just another thing of 'Let's cut the taxes for the wealthy people and let's shift the cost to poor people.' Well, geez, is that modernization?" said Mike Herald, Western Center on Law and Poverty.

To make up the loss in revenue, the commission proposes to eliminate the state sales tax and corporate income tax and replace it with a novel, yet untested, idea called the /*Business Net Receipts Tax*/ (BNRT), roughly 4 percent.

Most businesses would have to pay the BNRT, but companies like golf courses and landscapers whose products are not currently subjected to a sales tax would have this new tax.

"So it is more-oriented around a much broader tax base, taking into account what the 21st economy is like in California because the service part of our economy is not in the tax base now," said Gerald Parsky, commission chairman.

Again, advocates for the working poor say the BNRT is unfair because the tax would eventually be passed on to consumers.

But Governor Schwarzenegger is gung-ho about the proposal and declared a special session for lawmakers to consider it. He acknowledges it's a tough sell.

"People are scared of new things," said Schwarzenegger. "They don't know what's going to happen, so they're scared."

Many Democrats are concerned the new tax system would bring in less revenue for the state and may ultimately mean more cuts to education and social services. But the commission says had their proposal been in place this year, California would have had $9 billion more in its coffers.

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