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1 Joseph Henchman, Recent State Tax Reforms in the United States and Opportunities for California at a Time of Fiscal Challenge: Testimony before California's Select Committee on Recovery, Reform, and Realignment 1 (2011)

handle is hein.taxfoundation/taxfaavf0001 and id is 1 raw text is: Recent State Tax Reforms in the United States and Opportunities for California at a Time of Fiscal Challenge Joseph Henchman Tax Counsel & Director of State Projects Tax Foundation' Hearing Organized by Senator Sam Blakeslee, Chair, Select Committee on Recovery, Reform, and Realignment February 2, 2011 Mr. Chair and Members of the Committee: I appreciate the opportunity to testify today on the opportunity for tax reform at a time of fiscal challenges, and to provide an overview of tax reform in other states. For those unfamiliar with the Tax Foundation, we are a non-partisan, non-profit organization that has monitored fiscal policy at all levels of government since 1937. We have produced the Facts & Figures handbook since 1941, calculate Tax Freedom Day each year, and have a wealth of facts, rankings, and other information at our website, www.TaxFoundation.org. First, I want to praise the work done by my fellow panelists today. Professor Auerbach's testimony carefully and convincing makes the case that California, relative to other states, relies heavily on volatile revenue sources that rise sharply in good times and plummet deeply in bad times, amplifying the revenue effects from economic ups and downs, and consequently the budget impacts of unsustainably high revenue growth projections. High marginal rates on high-income earners, a high corporate income tax rate, a narrow sales tax with high rates, and a relatively high reliance on the individual income tax (as relatively low reliance on the property tax) all cause this phenomenon (See Figures 1 through 6.) Another sign is overreliance on targeted tax incentives, which inadequately attempt to mask and make up for a terrible business tax climate. The Council on State Taxation (COST) is an excellent resource and it's a great development that they've opened an office in Sacramento. I know Greg will lay out the details on how California relates to other states, its high tax burden and unfriendly business climate (See Figure 7). It is vital that we not forget that capital, entrepreneurial energy, investments, and even labor can go essentially anywhere in i I would like to acknowledge the invaluable assistance of Tax Foundation spring fellows Sarah Hyon and Alex Wood-Doughty in the preparation of this testimony. 1

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