Berggruen-Backed California Group Calls for ‘Reboot’ of Tax Structure

California should overhaul its tax structure, adopt a tax on services and ease corporate and personal income levies to help tame its volatile revenue, a group of business and policy leaders proposed.

The group, founded and financed by billionaire investor Nicolas Berggruen, will seek a pair of ballot initiatives in November 2012 to put the proposal to voters. The coalition, called the Think Long Committee for California, includes Google Inc. Chairman Eric Schmidt, former U.S. Secretary of State Condoleezza Rice and former California Governor Gray Davis.

California faces the prospect of having to slash more than $2 billion from schools and programs for the poor and elderly in the current fiscal year because revenue has failed to match projections that Governor Jerry Brown and Democrats built into their spending plan.

If adopted, the proposals would “reboot California’s dysfunctional democracy by installing a new civic software,” Berggruen’s group said in a report released today.

Berggruen, 50, who signed a pledge promoted by fellow billionaires Warren Buffett and Bill Gates to donate at least half of their wealth, is the son of an art dealer and owner of German department-store chain Karstadt Warenhaus GmbH.

The committee calls for reducing rates for every personal income-tax bracket. Those making less than $45,000 would pay nothing, while those making as much as $95,000 would pay 2 percent. Anyone above that would pay 7.5 percent. Millionaires would pay 8.5 percent because of a previous voter-approved 1 percent surcharge to pay for mental-health care programs.

The plan would reduce the sales tax on goods to 4.5 percent from 5 percent and broaden it to include most services except for education and medical care.

Tax Credits

Advocates would eliminate most tax credits and all itemized deductions except for mortgage interest, property taxes, charitable contributions and those for research and development. Taxpayers would receive an expanded standard deduction, equivalent to $45,000 for joint filers.

“This combination of cutting the personal income tax and broadening the tax base will help stabilize the boom-and-bust cycle of the budget while generating $10 billion in new revenue annually to start paying down the state’s ‘wall of debt,’ and provide funding” for schools, universities and public safety, the committee said in its proposal.

The group supports reducing the voter threshold to approve local public-works bonds to 55 percent from two-thirds; permit multiyear budgeting, create a so-called rainy day fund and require that tax cuts or new spending be paid for through budget cuts or tax increases.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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