The California Tax Reform Ballot

Frank Walker

[Reprinted from GroundSwell, July-August 2009]

Frank Walker, a California attorney, is currently drafting a ballot initiative intended to reinvigorate California's sagging economy and put unemployed Californians back to work. These goals will be accomplished by eliminating state taxes which discourage productive activity and new capital investment. A tax on the rental value of land will be the new source of state and local government revenue.

The proposed ballot measure is expected to be sponsored by a group now forming under the tentative name of Californians for Prosperity Through Tax Reform.

The target date to submit the proposed ballot measure to the State Attorney General's Office is September 25, 2009. This is a required step under California law governing ballot initiatives. The AG's Office will review the initiative for proper legal form, prepare a summary of the initiative and will give it an official name.

During the eight weeks that the measure is expected to be under review by the AG's office, supporters intend to mount an online ad campaign to draw viewers to a website which will make the case for the initiative.

Once the official summary has been released, supporters will have approximately five months to gather the nearly 700,000 signatures needed to qualify the initiative for the state-wide ballot in Nov, 2010.

If the necessary signatures are obtained and the measure appears on the ballot, the initiative will become law if 50% + 1 of the votes cast on this particular proposition are "yes" votes.

The California Tax Reform: "Let California Prosper"

This ballot measure, when approved by voters, will largely eliminate taxes which discourage productive enterprise and commerce in California. Public revenue will instead be provided by a tax calculated to collect 75% of the annual rental value of California's land.

Advantages

1. In a single stroke, California will become the most attractive place in the US for labor and capital to engage in production. New investment will flow in and jobs will multiply as California's economy begins to rapidly grow. This is the economic stimulus that California really needs - without a single dollar of federal deficit spending!
2. Taxes will be reduced or eliminated for a substantial majority of California's population. Non-landowners, such as those who rent their housing, will effectively be freed from taxation. Millions of working homeowners, especially those households with two wage-earners, will also benefit significantly as will the vast majority of businesses and high-income professionals.
3. Unlike California's present tax system, the new system based upon the collection of land rent will provide sufficient revenue to meet state and local needs. In addition to the present land value tax base, land rent will increase as existing taxes on labor & productive investment are eliminated. This reduction in taxation will enormously increase the demand for land in California. Since land in Calif. is in fixed supply, an increase in demand for land in our state will result in a higher price (rent). State & local public revenues will significantly increase from present levels.

The initiative is currently being drafted. The target date to submit the initiative to the California Attorney General's Office is September 25, 2009. With the required number of signatures by registered voters, the initiative will appear on the state-wide ballot in November, 2010.

Key Provisions:

1. Personal income tax: The first $150,000 of each person's income will be exempt from this tax. The maximum income tax rate will be reduced from the present level of 10.3% to 7.5%. Allow a nonrefundable income tax credit for any land value taxes paid by the taxpayer in California.
   
   Note: The top 1% of taxpayers in income pay 50% of the revenue collected by California's PIT and the top 5% pay two-thirds of the total revenue. The reform will effectively abolish PIT liability for 95% of present taxpayers while reducing the tax rate for those still subject to PIT. The tax credit for LVT paid will assure that many wealthy taxpayers will experience no increase in their total state tax burden even though their LV (property) taxes increase.
2. Sales & use tax: Abolished.
3. Property tax on improvements: Abolished.
4. Corporate income tax: Abolished.
5. VAT or business gross receipts tax: Prohibited / Abolished.
6. Property tax:
   
   

   (a) Assessed solely on the value of land.
   
   (b) Land to be assessed at fair market rental value.
   
   (c) Tax rate to be 75% of rental value.
   
   (d) Notices to be sent quarterly reflecting current rental value of owner's land parcel although taxes due calculated on that value may be paid in three equal monthly installments.

7. Alcohol & Tobacco excise taxes: Not affected.
8. Oil severance tax: California is the only major oil-producing state in the US without such a tax. Although the tax reform initiative will not establish such a tax, it will specifically provide that the legislature has the power to levy such a tax so long as any payment of a severance tax on a natural resource, including hydrocarbon deposits in any form such as petroleum, is credited against property tax due on such natural resource deposits or fields. Thus, levying of property taxes on the value of an oil field (without regard to improvements) will encourage production of oil to pay those taxes. However, when oil is actually severed or pumped from the earth, the severance tax will then apply to capture the largest part (75% or more) of the resource rent while offsetting property tax liability on that same resource.
9. Allocation of property tax revenues: Property taxes to be collected by the counties with all revenue received to be forwarded to the state treasurer. Counties and all municipalities & districts within counties to be guaranteed the average of revenues received by such counties / cities / districts during the three year period from July 1, 2007 through June 30, 2010 from the property tax and from any tax which is abolished or reduced by the initiative. This is a minimum level of guaranteed revenue. Due to the markedly higher and steadily increasing revenues received by the state from the collection of land rent, the state of California will have the ability to commensurately increase the amount of revenue provided to local government at all levels.
10. Date of implementation: Since county assessor's offices will need 4 to 6 months to prepare for the change, and since California operates on a fiscal year which begins on July 1 of each year, the initiative will establish July 1, 2011 as the date effective date for the tax reform to become effective. Notices of property tax due in the first quarter will be sent on June 1, 2011 with the first monthly tax payment due on July 10, 2011.