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California Tax Overhaul Plan Has Potential:

Rarely does a freshman state senator propose anything substantial during his or her first few days in office. But Robert Herzberg, elected last fall from a safe Democratic district in the San Fernando Valley portion of Los Angeles, is hardly a typical newbie.

Hertzberg, speaker of the state Assembly from 2000-2002 and an advisor to both former Govs. Arnold Schwarzenegger and Gray Davis for several years after that, has now taken on one of the toughest, most complex topics any legislator can. He wants to change California’s entire tax system, and he just might pull it off.

Hertzberg expects his plan, known as SB8, will take at least two years before coming to any floor vote, figuring it will probably undergo major changes in the process. But here are the basics:

This system would reduce income taxes across the board, while still keeping “progressive” features like having those with higher incomes pay a larger percentage of it as tax. The minimum wage would rise, by a yet-undetermined amount. Business would get some tax breaks, designed to encourage job creation. More than making up for these revenue losses would be a new sales tax on services (education and health care to be exempt). So movie tickets, legal work, accounting and labor on auto body repairs would be taxed. It’s still uncertain how this might apply to the Internet and at what level businesses would be eligible for new tax incentives.

Of course, any sales tax is regressive, hitting those with low incomes harder than the rich. It’s not certain whether the reduced income tax and a higher minimum wage could compensate for this.

The plan is not Hertzberg’s brainchild alone. It stems from his work with an outfit called the Think Long Committee, whose membership has included Google executive Eric Schmidt, movie executive Terry Semel, former Republican state Treasurer Matt Fong, Los Angeles businessman and philanthropist Eli Broad, ex-Gov. Davis, former Secretary of State Condoleeza Rice and former state Chief Justice Ron George, among others. The group is funded by billionaire Nicolas Berggruen.

“We’re aiming for $10 billion a year in new money from this plan,” Hertzberg said in an interview. “We’ll start with what’s now in my bill, and modify it to try to have it make sense if people have problems with it. It could even end up as a ballot initiative. But we need this to help both our kids and businesses in this state.”

Hertzberg points to the ongoing controversy over tuition at the University of California and the California State University system as one example of how the existing tax system harms young people in California.

“We need a new philosophy of government,” Hertzberg said in one essay on his tax plan. “California has long been known as the land of opportunity, but for too many of its residents the future is receding. Inequality continues to rise… Something more is needed. Above all, we need public investment in infrastructure and in public education, especially higher education.”

Hertzberg is firm about one part of his bill that would hold off cuts in the income and corporate taxes until new sales levies bring in enough money to give low-income workers earned-income tax credits similar to what the federal tax system provides.

And he says he will not change parts of the plan earmarking the new $10 billion for schools, colleges, infrastructure including road repairs and $2 billion for that earned income tax credit.

“The revolutionary thing about this is that we would tax services for the first time,” he said. “And that we give the new money to cities, counties, community colleges, school districts, universities and the low income.”

Hertzberg expects this plan to provoke “the longest discussion of the next two years.” Since he chairs the Senate committee in charge of state and local governance, taxes and finance, “I can call all the hearings on it I want, and I will.”

So far, there are few supporters or opponents. But both business and labor groups, along with leading Democratic and Republican legislators say they look forward to the talk and the hearings.

The twin questions yet to be answered: Will this all be mere talk? And should it ever amount to anything more? Stay tuned.

in Opinion
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