California’s Attempt To Escape the Middle Ages

California tax reform is getting an update. Well, sort of.

It’s sobering that California has not seen comprehensive tax reform since the Great Depression. To think that California taxes are a byproduct of economic trends and demographics is harrowing in and of itself. But realizing that, over the past seven decades, no politician or lawmaker wanted to stick up for their state is downright disgraceful.

All of this might change as State Controller Betty Yee, the Chief Financial Officer of California, has submitted comprehensive tax reform. This reform was written by a panel—aptly named The Council of Economic Advisors on Tax Reform—of academics, business leaders, and government officials. It is not the framework for something new, but intends to act as a catalyst to rid of the old system in order to bring some stability to California’s economic crisis and reduce economic inequality.

California’s last major tax update was a doozy. Just a hair over 38 years ago, California Proposition 13 (1978) cut and capped property tax for both commercial and business properties and required a two-third majority vote for any future tax increases. This does not sound all the bad, right? In actuality, it benefited corporations and the wealthy since it froze property tax even though the value of the houses rose exponentially. What was meant to create a system in which people wouldn’t be priced out of their homes became a self-inflicted stranglehold on incoming state revenue, which has cascaded since and caused a fluctuation of California’s economy.

Many believe the current tax system does not serve California as well as it might, and that a review of the entire structure is long overdue. Post-Proposition 13 revenues from the sales and use tax, the corporation tax, and the property tax have diminished. This has increased California’s dependence on the personal income tax.

Proposition 13 was just part of the problem which compounded against California that Yee intends to change with a tax reform. There are huge political implications in attempting to create tax reform, but something needs to be done quickly in order to move on from draconian tax laws. Californians should definitely be paying attention in upcoming months for future developments.

I am an Editorial Associate at TaxConnections providing you with tax news from around the world.

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