Your Fair Share: A Revenue Tax Proposal

Would you agree to a new tax if it were shared by all sectors of California’s economy? All Californians would pay for some, as would all businesses. Governor Jerry Brown and the Democratic Party-controlled State legislature have passed a budget that cuts $11.6 billion from the poor and the working people and proposes extending $15.4 billion in sales and other taxes due to expire by the end of this year. Grandma’s group home might be closing and certainly her day activities program, and her healthcare will be cut back. Community colleges, CSU and UC are all affected, as places for hundreds of thousands of students will disappear. Democrats have come up with a job-killing, recession-producing solution one would expect from a Republican-controlled state. But even with all these cuts, no Republican legislators would allow the people to vote on confirming this budget by extending taxes to pay the balance. We should all hug a Republican today for slowing the process down, and then call our Democratic legislators and tell them we will only vote yes on a No Cuts Budget!

Labor and progressives fought hard to have a Democratically controlled state; we should insist that they act the part. Just to cover some of the other $15 billion in an all-cuts budget, it will take $5 billion more from schools, another $1.7 from higher education, and another $1.2 billion from health and social services. Here’s an alternative progressive no-cuts tax proposal.

Impose a 1.5 % tax on all business income. This tax proposal relies on a small percentage but is applied to a very large base, shared equally as stated above. As California is the eighth largest economy in the world at $1.9 trillion, a 1.5% tax on that amount would collect $28 billion -- more than enough to cover our state budget deficit of $26 billion.

The tax would be applied to all business revenue: income prior to any deductions. It would be shared equally by all business sectors, not just the retail sector as sales taxes are. As a percentage of income, sales taxes fall mostly on people who earn less and are therefore regressive taxes. Sales taxes are limited to some forms of business transactions and amount to roughly 25% of the state general fund.

This revenue tax is a flat tax, something that should appeal to many populists because it sounds so fair, but it is a flat tax on business revenue, not on personal income. Flat taxes on personal earned income are regressive in that they consume a larger portion of income from those in the lower tiers of the income bracket. Folks in the higher tiers have more income from sources other than earnings from employment.

Whether a business is manufacturing or farming, finance or service, landlord or oil pumping, all revenue would be subjected to a 1.5% tax. Currently businesses are allowed to deduct their expenses prior to calculating their taxes. This is comparable to us deducting our ride to work and our lunch money prior to figuring our taxes. A tax on revenue prior to deducting expenses would more fairly reflect the use of our state infrastructure by each business. Businesses use our highways and courts, they benefit from our prisons and schools, they employ our residents and take advantage of our state’s vast natural and improved resources. And their use of this infrastructure is generally proportional to their business income.

We should give this new tax an appropriate name, “Your Fair Share,” as business will resist it. But this tax is fair to all business in that it does not penalize the more efficient and profitable. Whether a business operates on a 5% or 10% or 25% profit margin, it would be taxed 1.5% on its revenue and not on how best it can maximize profit or divert profit to overseas subsidiaries. This tax would also be paid for by all sectors of our economy, not just business.

Some businesses will be able to pass this tax along to the consumer as a price increase. Monopolies will certainly do this. But not all firms operate with the power of monopolies. Some firms will have to pay for this tax by reducing the profit they share with their stockholders or from their managers' salaries, and some will take it from employee paychecks. This revenue tax proposal is only 1.5% and it saves tens of thousands of jobs without cutting services.

When the people write the budget, progressive alternatives are considered. The People’s Budget Task Force.