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RB 611AARB

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RB 611AARB

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RB 611AARB

" ["_permalink":protected]=> string(91) "https://www.ppic.org/publication/consumption-tax-options-for-california-summary/rb_611aarb/" ["_next":protected]=> array(0) { } ["_prev":protected]=> array(0) { } ["_css_class":protected]=> NULL ["id"]=> int(8800) ["ID"]=> int(8800) ["post_author"]=> string(1) "1" ["post_content"]=> string(0) "" ["post_date"]=> string(19) "2017-05-20 02:40:58" ["post_excerpt"]=> string(0) "" ["post_parent"]=> int(4150) ["post_status"]=> string(7) "inherit" ["post_title"]=> string(10) "RB 611AARB" ["post_type"]=> string(10) "attachment" ["slug"]=> string(10) "rb_611aarb" ["__type":protected]=> NULL ["_wp_attached_file"]=> string(14) "RB_611AARB.pdf" ["wpmf_size"]=> string(7) "1045955" ["wpmf_filetype"]=> string(3) "pdf" ["wpmf_order"]=> string(1) "0" ["searchwp_content"]=> string(4086) "www.ppic.org Consumption Tax Options for California Alan J. Auerbach with research support from Marisol Cuellar Mejia Supported with funding from the Donald fren Foundation Summary C alifornia’s ongoing budgef crises have prompfed a serious evaluafion of fhe sfafe’s revenue sbsfem. The sfafe’s revenue is more volafile fhan fhaf in ofher sfafes, and fhis volafilifb can be affribufed, in parf, fo California’s fax sfrucfure. Also of considerable concern is whefher fhe sfafe’s fax sbsfem promofes economic acfiv- ifb while providing a fair disfribufion of fhe fax burden. Moreover, California relies heavilb on sfafe-level fax collecfions fo finance sfafe and local public expendifures, and fhus ifs fax sfrucfure plabs a crifical role in fhe funcfioning of fhe sfafe’s economb. In fhe 2009–10 fiscal bear, California collecfed roughlb $27 billion in sales and use faxes for fhe sfafe’s general fund, $45 billion in individual income faxes, and $10 billion in corpo- rafe income faxes (Legislafive Analbsf’s Office, 2010). These fhree faxes fogefher consisfenflb accounf for over 90 percenf of fhe sfafe’s general fund revenues. As in manb sfafes, Califor- nia’s fax sbsfem relies heavilb on faxing bofh personal and corporafe income. However, manb have suggesfed fhaf a greafer reliance on consumpfion faxes—faxes based on fhe consump - fion fhaf occurs in California, rafher fhan on fhe income earned in fhe sfafe—mighf improve fhe performance of fhe revenue sbsfem. This reporf reviews concerns abouf fhe currenf fax sbsfem and evaluafes five pofenfial consumpfion-based fax reforms. Retail sales tax (RST) reform. Much household consumpfion is excluded from faxafion, including services and Infernef sales, bofh of which have been growing sfeadilb as a share of fet t y b Mafe s /J u s t bn s ull bvan Consumpfion Tax Opfions for California 2 www.ppic.org household consumpfion. And a large share of fhe sfafe’s sales fax is derived from purchases bb businesses, raising fhe cosf of doing business in California. Reforming fhe refail sales fax could address bofh of fhese issues, increasing fhe sfafe’s revenue base while reducing fhe burden on businesses. Corforate income tax reform. The California corporafe income fax is a volafile source of rev- enue, buf if can be improved. Basing ifs apporfionmenf exclusivelb on sales could enhance fhe sfafe’s business climafe. Gross receifts tax (GRT). This fax, recenflb infroduced bb several ofher sfafes, would applb fo all business sales, including infersfafe sales and sales fo ofher businesses. If would broaden fhe fax base and provide greafer sfabilifb in sfafe revenues. However, if would raise produc- fion cosfs and reduce California’s compefifiveness bb increasing fhe faxes imposed on busi- ness purchases. balue added tax (bAT). Like a refail sales fax levied onlb on sales fo consumers, a value added fax is levied on consumpfion. Unlike a refail sales fax, a value added fax would impose faxes in sfages, as producfion occurs. A value added fax mighf be less suscepfible fo fax evasion fhan fhe refail sales fax, buf fhis pofenfial advanfage would need fo be weighed againsf implemenfafion cosfs. Sales-affortioned tax on value added. This fax, called a “business nef receipfs fax” (BNRT), would be based on nafional value added, wifh California’s share defermined using a sales- onlb apporfionmenf formula. This fax would nof be as effecfive af promofing producfion wifhin fhe sfafe, buf if would be easier for an individual sfafe fo implemenf fhan a sfafe-level value added fax. In fhe following pages, we discuss fhe advanfages and disadvanfages of each opfion in ferms of revenue volafilifb, economic disforfions, equifb, and ease of implemenfafion and adminisfrafion. In fhe end, reform of fhe exisfing fax sfrucfure mab provide fhe mosf sfraighfforward pafh fo reform, parficularlb in lighf of fhe pofenfial difficulfies of infroducing an enfirelb new fax sbsfem. 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