SOME POSSIBLE TAX REFORM OPTIONS

The current fiscal crisis in California's budget requires us to radically rethink and restructure the tax strategies that would allow our wealthy economy (the equivalent of fifth-- or perhaps sixth or seventh-- largest national economy in the world) to adequately fund public services. One important principles is restructure in ways that support sustainable economic development. A second principle is to look at the concentration of assets as well as the distribution of income.

Currently Under Consideration by California Legislature:

--Vehicle License Fee (VLF--value tax). Comment: Taxes an asset that is correlated with wealth.

--Internet Sales Tax: Comment: There is no particular reason to subsidize communication technology and internet business since they are probably reasonably good investments in spite of recent excessive speculation. If the government needs to subsidize job creation, it should do so in more direct ways.

Options to Consider:

--Tax Shifting: Shifts taxes from present sources to items such as pollution that have negative environmental impacts. Source: Lester Brown, Eco-Economy.

--Service Taxes: Sales tax on services as well as goods. Source: Ruben Armiñana, President, Sonoma State University. Comment: The present tax system was designed for a manufacturing economy, not for our contemporary service economy. Furthermore, services such as legal and accounting services are used primarily by the relatively affluent who have higher incomes and hold the lion's share of economic assets.

--Capital Commons User Fee. Source: Jeff Gates, "A Proposal for Funding a Defense of the Commons," Chaordic Commons (Winter 2002). Comment:

Throughout history, commons have served as a key source of financial value. Financial markets themselves offer a dramatic modern-day example.

For instance, financial securities can rightly be called "securities" only because the force of international law, another crucial commons, underwrites cross-border property rights in those securities. That legal claim traces its financial value to an organizational commons founded on private property principles and on its corollary, the cross-border enforceability of contractual claims, including those embodied in securities traded in capital markets.

In addition to underwriting the value of those property rights, capital markets add an additional element of financial value by offering security-holders an opportunity to diversify their holdings, thereby lowering investment risk and enhancing value. Security-holders can also exchange their contractual claims (AKA securities) for cash, a value-added benefit. In financial terms, that potential "liquidity" boosts the value of a traded security by 35 percent when measured against an untraded security in a comparable firm. That financial premium stems from the opportunity this commons offers for diversification or cash. In that sense, the "capital commons" operates as a "financial field" in which financial value emerges due to the financial possibilities in that field. (Jeff Gates, op. cit.)

Gates suggest that a 3.5% user fee would be sufficient to eliminate "persistent abject poverty." Gates' writings also offer a plethora of useful ideas for public policies to democratize ownership.

--Land Value Tax ("Single Tax"). Source: Henry George, Progress and Poverty (1879). Comment: Tax the value of land but not of improvements, on the grounds that land is the source of all wealth, and that its value largely reflects the value of the collective human activity that takes place on it.

--Collect sales taxes in local currency. Comment: Local currencies primarily promote increased local economic activity. Therefore, the taxes associated with the general state sales tax rate on local currency transactions should stay with local jurisdictions.

--Local Currency Charitable Deduction. Give a charitable tax deduction to purchases of local currency that go partly to charitable causes, as with Toronto Dollars.

 

  • --Arthur Warmoth, Ph.D.
    2/23/03