Influencers Opinion

California’s tax laws need to benefit the middle class. Here’s what should change

Note to readers: Each week through November 2019, a selection of our 101 California Influencers answers a question that is critical to California’s future. Topics include education, healthcare, environment, housing and economic growth.

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California’s middle class often gets squeezed into an economy with no room for errors. As the gap between the very rich and the very poor continues to grow, The Sacramento Bee’s California Influencers weighed in on how best to help those caught in between.

Cassandra Walker-Pye, a former adviser to Gov. Arnold Schwarzenegger and the founder of 3.14 Communications, criticized what she called “Sales Taxes Gone Wild.”

“Californians pay… the highest sales tax (7.25 percent) in the nation. Local governments are allowed to levy additional sales and use taxes… meaning some of us pay over 9 (percent) in total sales tax,” said Walker-Pye, who warned of efforts to lower the threshold for additional local sales tax increases. “This strikes me as a serious threat for middle income Californians and those who are living at the margins.”

Several Influencers argued for other types of tax relief, including former State Treasurer John Chiang, who recommended targeted deductions to encourage families to set aside money for their children’s education.

“Let’s boost investments in learning,” Chiang said. “Children with savings accounts, however small, are seven times more likely to attend and graduate college. Our state lawmakers can support parents and others who build college nest eggs for their children by offering a state tax incentive for such investments.”

Lenny Mendonca, Gov. Gavin Newsom’s chief economic adviser, pointed to Newsom’s broadening of a tax credit for middle-class Californians in this year’s budget.

“Putting money back into the pockets of working families benefits all Californians,” Mendonca said. “Expanding (the earned income tax credit) will support our local economies – with money going back into local businesses – and it will spur self-employment and entrepreneurism by helping our working families with children.”

Assemblywoman Monique Limon (D-Goleta) called for expanding the tax credit further to include more middle-class families.

“In addition to creating and maintaining jobs, we must consider tax incentives that will enhance the middle class,” she said. “Our tax system must evolve to support those in need and to put money back into the hands of Californians who are keeping our economy running.”

Pepperdine University professor Luisa Blanco Raynal argued that the credit would be even more beneficial if it were offered on a paycheck-by-paycheck basis rather than annually.

“The current tax laws do not accommodate for income volatility, which is a problem for the middle class,” Raynal said. “Changes in income from month to month make it harder for low and moderate income households to predict what they need to pay in taxes or what their tax refunds will be at the end of the year.”

Jennifer Barrera, executive vice president of the California Chamber of Commerce, contended that other economic burdens require more urgent attention.

“California’s notorious business regulations trickle down to higher costs to consumers,” said Barrera, who also referenced the high cost of gasoline, utilities and housing. “What really affects middle class Californians are all the other state-imposed costs… State leaders should daily challenge themselves (on) how to reduce the everyday cost-of-living for Californians.”

Several Influencers expressed concerns about skyrocketing housing costs and called for changes in the tax code to assist prospective homeowners.

“Expand the homeowner’s property tax exemption to a $7,500 refundable tax credit for first-time home buyers... Then reduce the tax credit after three years by $1,500 for the next five years,” proposed Chad Peace, president of IVC Media. “This would help young, middle, and working-class families afford their first home.”

Former Congressman Tom Campbell (R-Palo Alto) talked about the difficulties faced by small business owners.

“The IRS estimates that the average non-business taxpayer takes eight hours to complete… tax returns every year. The average business taxpayer spends three times that amount of time,” said Campbell, who argued that California’s requirement to fill out separate state and federal income tax forms was unnecessarily duplicative. “Eliminating that… step would be of great help to middle income taxpayers who do their own taxes and middle income taxpayers trying to run a small business.”

Not surprisingly, President Donald Trump’s tax policies attracted blame in deep-blue California as well.

“Because Trump limited the state/local tax deduction to $10,000 on federal tax returns… California’s working families continue to be hurt by federal tax policies favoring corporate special interests and the wealthiest Americans,” said Bay Area consultant Catherine Lew. “(We must) fully support efforts of… congressional leaders seeking to double this unfair, arbitrary cap (and) legislate a state workaround here in California – let the IRS take their chances by challenging us in court.”

Dan Schnur, a veteran analyst and longtime participant in California politics, is director of the California Influencers series for McClatchy.
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