State Controller Betty Yee wants tax reform that relies less on the top 1%

State Controller Betty Yee: 'I don't think it's sustainable' to bank on the wealthy as cash cows for treasury

New state Controller Betty Yee is not your typical politician. She's boldly sticking her neck out on a continuous issue bound to cause grief.

The issue is tax reform, a taboo subject for most elected officials. At least, the comprehensive reform — not merely cutting taxes and creating loopholes — she's talking about. She wants to broaden the tax base, collecting from more people and relying less on the top 1%.

"It's not because I don't want to tax the rich," the Democrat says. "It's just that I don't think it's sustainable" to perpetually bank on the wealthy as cash cows for the state treasury.

There's plenty of proof for that concern. California's state tax system functions like a yo-yo, performing erratically depending on whether the economy is booming or busting.

There's no way to plan consistent funding for schools, universities, social services, public works and law enforcement. So when the inevitable recession hits, these and other programs get whacked.

Especially dicey are incomes of the rich, which fluctuate wildly based on whether their investments — their capital gains — soar or sour.

The latest figures, for 2013, show the top 1% accounting for 21.8% of California's adjusted gross income but providing 45.4% of the state's personal income tax. The top 10% earned 49% of the income and paid 78% of the tax receipts.

Yee wants to stabilize the revenue flow by making the tax system less progressive, less soak-the-rich. But — and here's a key point — she also says the state should spend more on the middle class and working poor.

She mentions pumping more funds into higher education to stem tuition hikes, into healthcare for the poor and into affordable housing.

"It's really hard to blame all our ills on the tax system," Yee says, adding that spending also is to blame.

She criticizes some "tax expenditures" — breaks and loopholes that cost the treasury money. "Once these things are enacted," she says, "they're there forever, although they may have outlived their usefulness."

One example she cites: The mortgage interest deduction for vacation homes. "What's the policy rationale for that?" she asks. "That's a benefit for the rich. But we can't afford to build low-income housing for people who don't have a roof over their heads."

She also plans to seriously look into spreading the sales tax to services, as many states have done. Our economy now is based much more on services than retail goods, but we only tax the latter. California's tax system is stuck back in the mid-20th century.

Hardly any other politician, however, is trying to match taxes to 21st-century realities. There's too much grief in it because some voters would wind up paying more.

One exception to this timidity is state Sen. Bob Hertzberg (D-Van Nuys), who's scurrying about trying to build a reform coalition, so far unsuccessfully.

"I don't think the governor has any plans to do tax reform," Yee says. From every indication, she's right.

Yee recently created a nine-member advisory council to study California's tax system. It will analyze the practical effects, unintended consequences and possible alternatives of various proposals.

The controller isn't asking the council to settle on a reform package, although she could eventually propose one herself. The group's purpose, she says, is to answer "the first question people want to know: 'How does this apply to me?'"

Yee, 57, is gutsy, disciplined and a policy wonk. She's also pleasant and genuine, but hardly charismatic. You won't hear much of either small talk or soaring rhetoric.

She's one of those "only in America" stories.

Her parents emigrated from China — her dad in the 1930s after his family told him he had no future there, and her mother in the 1950s when she escaped the new Communist regime.

Yee grew up in San Francisco's foggy Sunset District, keeping the books for her parents' laundry and dry cleaning business. That's how she got hooked on numbers. The family of eight lived in a studio apartment behind the laundry, packed into bunks and a couch.

Her introduction to politics came as a 13-year-old when she argued before the San Francisco school board against busing her sister across town in an integration program. "I told them they should take the busing money and invest it in schools," she recalls.

Yee lost the argument, "but I learned about being a voice for someone," she says.

She graduated from UC Berkeley and wound up working in the state Capitol crunching numbers, first for the Legislature and then Gov. Gray Davis as his chief deputy budget director. Then she latched on with the state Board of Equalization and eventually was elected to a seat.

"I never thought I'd run for office," she says. "But the more I talked to people, I said, 'I can do this job.'"

Yee took on giant Amazon, leading the fight to force the Internet retailer to collect sales taxes.

When former Controller John Chiang was termed out last year, Yee ran for that job, beating out ex-Assembly Speaker John A. Perez (D-Los Angeles) in a historically tight primary election.

Her secret: hard work, smarts, pluck and authenticity.

Her future: Two terms as controller. After that, the best bet is treasurer. But don't count her out of the mix for governor. We could do worse, and have.
Twitter: @LATimesSkelton

Copyright © 2016, Los Angeles Times