Create a grand bargain on stabilizing taxes and improving government service delivery.

BACKGROUND

California faces the challenge of finding new tax revenues that are more predictable than the income tax that fluctuates significantly with the boom and bust cycles of California’s economy. The volatility of tax revenues often leads to cuts in important social services during periods of low revenue. To address this issue and to ensure a fair and sustainable revenue stream, we propose a bipartisan grand bargain on taxes and government spending in California. The key objective of this proposal is to limit runaway government spending, shift taxes to a more reliable and less volatile revenue source, prioritize pension reform, and enhance government effectiveness in service delivery.

KEY FEATURES 

  • Shift California’s mix of income, service, sales, and property taxes to ensure that it is more reliable, and continues to provide relief to low-income and middle-class Californians.
  • Proposal would be revenue neutral unless at least 50 percent of increased revenues pay down unfunded liabilities and make it conditional on enacting reforms such as increasing employee contributions, adjusting retirement age and benefit calculations, and exploring hybrid pension systems that combine defined benefit and defined contribution elements.
  • Proposal would be revenue neutral unless at least 10 percent of increased revenues are invested in proven technologies and processes that increase efficiency, improve customer service, and reduce costs of providing services. 

IMPLEMENTATION AND SEQUENCING CONSIDERATIONS

  • Improvements in government services would include better coordination across government agencies and more effective, efficient, and equitable uses of digital tools and data infrastructure to make them customer-friendly.
  • This proposal would benefit from lessons learned during implementation of the state’s Cradle to Career (C2C) data system and county implementation of California Advancing and Innovating Medi-Cal (CalAIM). 
  • It might be easier to enact tax reform that is revenue neutral than to tie revenue increases to pension reforms or investments in government efficiency.
  • It might be easier to enact reform when income tax revenues are stable over two or more years rather than when they are rapidly increasing or declining.