California's Assembly speaker aims to fix tax system before next crisis hits

SACRAMENTO -- One severely broken part of California's state government is the tax code. It's antiquated and unreliable.

Government financing is too heavily dependent on the rich, who have good and bad years, causing roller-coaster tax trauma in the Capitol. And there isn't enough help from the creaky old sales tax.

The volatility of the tax system keeps getting worse, making it increasingly difficult for policymakers to plan ahead.

New Assembly Speaker Karen Bass (D-Los Angeles) has taken up the cause and is bent on creating an independent blue-ribbon commission to overhaul the tax code.

"The economic crisis is national, but not every state is having the problems we are," she lamented last week over a blackened salmon salad. "How have other states managed to weather this, and why can't California figure out how to do it?"

She wants the commission to study other states' tax codes and find out.

"I'd expect it to come up with more stable ways to generate revenue so we are not completely dependent upon the upper income brackets. Also, I envision the commission coming up with ways to incentivize the economy."

OK, is this a plot to raise taxes? That's what some Republicans fear.

Not directly, Bass responds, but the effort could result in a bigger take if the economy is stimulated by tax incentives.

"Some states have revised their tax codes in a revenue-neutral manner, but wind up producing more revenue in the long run," she says, sounding somewhat like a conservative supply-sider. "I definitely want to see more revenue. But that doesn't mean it can't be revenue-neutral in the short term and -- especially if the economy is incentivized -- produce more revenue in the long term."

Right now, Bass is concerned that "the guys" -- as she calls Gov. Arnold Schwarzenegger and the other legislative leaders -- aren't fully committed to restructuring the tax system. They profess

to be -- especially the governor, less so other Republicans -- but Bass says she's "worried."

The speaker had hoped to have the commission in place and cogitating by now. But the governor and other leaders, she says, asked her to hold

off until the annual budget brawl ends, whenever that is. It will be in early August, unless the lawmakers are feeling politically suicidal. After that, the state runs out of cash and borrowing gets very expensive.

Bass has an uneasy feeling that the focus on budget negotiations -- necessary as it is -- "keeps the pressure off" creating the commission and moving ahead to finally up-

date the tax system. After they've compromised on a budget deal, she concedes, "everybody's going to be exhausted."

Regardless, she continues, "my goal is that we tie down the commission and announce it right after the budget is signed. Because I really want the commission's recommendations to impact the next budget year. It would be foolhardy to work on a budget this year and then not think about it again until January when we know well in advance we're going to have another huge [revenue] shortfall.

"I think that stabilizing revenue is the most important thing we can do. I feel passionately about that."

Schwarzenegger recognized the problem during his State of the State speech in January: "The rich in California, by far, pay most of the income taxes. But we only have so many rich people. The top 10% of the population . . . pay nearly 80% of the taxes. So our whole revenue system, its ups and downs, is based on whether the rich have a good year."

Here's another startling figure: The top 1% -- representing only 140,000 tax returns -- pay 48% of the income tax. In 1993, they were forking out just 33%.