Editor's Notes

When I talk about radical change, I'm not talking about a tax here or there
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tredmond@sfbg.com

Just about every progressive economist agrees that the federal bailout bill should include money to help state and local government. I agree. Forcing government to lay off public sector workers and cut services is the worst thing you can do in a recession.

But in a strange way, some sick, contrary part of me almost hopes the Obama administration doesn't bail out California. Federal money would let us off easy. It would let us do what just about everyone in Sacramento desperately wants to do right now: figure out a way to get out of this mess for another year. Then we can all hope things will get better again.

But they won't, is the thing. As the San Francisco Chronicle reported Jan. 25, the weak economy is leading to a lot of home sales, and a lot of those sales are at prices below the level of the property's current tax assessment. So property tax revenue will be dropping this year - but they'll stay low next year, and the year after, and the year after that. Because under Proposition 13, property taxes can't go up by more than 2 percent a year. So even as the economy recovers and property values rise, those houses and commercial properties sold at bargain basement levels today will continue to enjoy nice tax cuts for the foreseeable future.

Meanwhile, the state already owes billions from previous one-time borrowing to cover previous one-time budget solutions. And since most of the money comes from taxes that are highly unstable and move with the economy (sales taxes, for example), the budget hole is going to get worse before it gets better.

This is no way to run the world's eighth-largest economy.

And I keep thinking: could this finally be our chance to do something about it? Might things get so bad this year that people start asking about actual radical change?

And when I talk about radical change, I'm not talking about a tax here or there. I'm talking about somebody in the Legislature standing up and saying, if we were going to create from scratch a system to fund the state of California, what would it look like? And I can tell you, it would look nothing like the Winchester Mystery House of tax laws that we have today.

I won't be the one called on to draft the blueprint for a new California revenue system, which is probably a good thing. But I can make a few observations and offer a few proposals that almost everyone with any sense agrees ought to be on the table.

First, California may be broke right now, but many of its residents are not. Generally speaking, the fairest types of taxes are income taxes, and the state doesn't charge the people with very high earnings anywhere near enough. And since the rich don't tend to suffer as much as the rest of us in recessions, that's a fairly stable resource.

We don't do enough to capture our share of the money companies make off California's resources, either. This is an oil-producing state, yet we have no tax on oil at the wellhead; even Louisiana has that. And we don't do nearly enough to charge consumers for the damage they do to the environment (the car tax being the most obvious example).

But beyond that, we tax goods and manufacturing, which is no longer the base of our economy, and let services go free. Some services are necessary and should be exempt (medical care, for example). But are the people who pay for, say, personal trainers or cosmetic surgery by and large better off financially than the rest of us? I suspect they are. Should they be taxed on what is by almost any standard a luxury service?

The point is, we need to stop looking at this as a one-time problem. This year's deficit is the canary in the financial coal mine. Maybe instead of a ballot measure on one tax plan, we should have an election to reconsider Prop. 13, the tax code, and the entire way we finance the state. The system is about to collapse. Maybe we should start again, and get it right this time.