Since a discussion of tax politics begins and ends quickly in the Capitol, let’s try talking economics instead. The Governor’s tax commission did the state the favor of opening the discussion of the economics of taxation, and Schwarzenegger called for “major, radical reform” in his State-of-the-State address. So perhaps an economics discussion will attract some real debate, instead of the “just say no” discussion which applies to all taxes, however rational they may be.
The Commission on the 21st Century Economy (COTCE) also did an inadvertent favor to the discussion through their proposal to tax the net receipts of all businesses, which the Governor called “great, great reform.”
One key point made by many analysts of this tax is that many businesses would be taxed heavily even if they incur significant losses, because major expenses — labor, interest on debt — would not be deductible from the tax. The result of the backlash to this proposal was, helpfully, to reinforce the concept that taxing profits through the corporation tax and the income tax makes economic sense, contrary to the misguided COTCE goal of eliminating the corporation tax and flattening the income tax for the wealthy.
