Schwarzenegger Wants Fast Action on Tax Overhaul

Gov. Arnold Schwarzenegger said he will sign an executive order calling a special session of the...

Gov. Arnold Schwarzenegger said he will sign an executive order calling a special session of the Legislature to take up a plan to overhaul California's tax system, during a Capitol news conference in Sacramento, Calif., Tuesday, Sept. 29, 2009. The tax overhaul is among the recommendations of the Commission on the 21st Century Economy. At right is commission chairman Jerry Parsky. (AP Photo/Rich Pedroncelli)

(AP)

A proposal to dramatically reshape California's tax system drew criticism Tuesday from across the political landscape, even before the Legislature begins considering the plan.

The state would repeal its sales and corporate taxes, flatten the income tax rate, and tax a wider variety of businesses under Tuesday's recommendations from the Commission on the 21st Century Economy. It would include a nearly unprecedented "business net receipts tax" that would apply to all companies doing business in California, including many based in other states.

Gov. Arnold Schwarzenegger immediately endorsed the proposal by the tax commission he created with Democratic legislative leaders a year ago. He called lawmakers into special session, asking them to approve the plan this year.

But business and labor organizations alike urged slow and careful consideration of what the California Chamber of Commerce cautioned is "an unproven experiment."

"What's really extraordinary about it is this new tax is unprecedented anywhere in the world," said University of Connecticut professor Richard Pomp, a national tax expert who sat on the California commission. "It's got lots of potential problems. Maybe they're remediable, maybe not."

Pomp was one of five on the 14-member commission who refused to support its final recommendations. The centerpiece business receipts tax has been tried only on a limited scale in Michigan, he said, with uncertain results.

"This tax wouldn't be good for the economy," said Pomp, an international tax consultant and author who directed the New York Tax Study Commission from 1981-87. "I think this is shooting dice."

The business tax is among several ideas intended to end a boom-and-bust system that relies heavily on personal income taxes to fund state government. The top 10 percent of income earners paid more than 53 percent of the personal income tax last year, according to the commission's report.