November 14th, 2011, 3:00 am
Posted by Teri Sforza, Register staff writer

We’ve been referring lately to the state’s unwillingness — perhaps paralysis is a better word? – to do the hard work it needs to do to balance its books in the 21st century.

Here’s a picture that shows what we mean.

SALES TAX

About 40 years ago, sales and use taxes — the taxes folks paid on stuff they bought — furnished the lion’s share of California’s revenues, paying for everything from prisons to schools.

Today, though, these sales and use taxes make up a much, much smaller piece of the puzzle.

That’s because times have changed: ”The reduced share for the sales tax reflects in part the increase in spending on services, which generally are not taxed,” the Legislative Analyst tells us.

INCOME TAX

Also note how very much more dependent California is on the beloved personal income tax. It furnished only 27 percent of the state’s general fund in 1970 — but is now the Big Gorilla, providing 51 percent in 2010.

“This growth is due to growth in real incomes, the state’s progressive tax structure, and increased capital gains,” the LAO says.

HOW TO FIX?

In 2009, Gov. Arnold Schwarzenegger‘s Commission on the 21st Century Economy recommended a radical overhaul.

“California’s tax system was established in an era much different from today,” it said. “In the 1920s and 1930s, when the tax system’s foundation was being set in place, manufacturing and agriculture dominated the state and residents mostly bought and sold tangible goods. Over the past 70 years, the forces of globalization and technological progress have transformed California into a state of not one but many economies.”

To read entire story, click here.