Hertzberg proposes $10 billion sales tax on services

Hertzberg proposes $10 billion sales tax on services

Robert_HertzbergAn influential state lawmaker is proposing a $10 billion sales tax on services that would include everything from accounting to yoga classes.

State Sen. Bob Hertzberg, D-Van Nuys, says the changing global economy requires a reevaluation of what’s considered subject to sales and use taxes. That’s why he’s introduced Senate Bill 8, a massive tax overhaul that, he contends, will help avoid “the state’s boom-and-bust tax structure.”

“During the past 60 years, California has moved from agriculture and a manufacturing-based economy to a services-based economy,” said Hertzberg, a former speaker of the State Assembly, who is considered one of the state’s most effective lawmakers. “As a result, state tax revenues have become less reliant on revenues derived from the Sales and Use Tax on goods and more reliant on revenues derived from the Personal Income Tax.”

“Something more,” he added, “something visionary, is needed.”

BOE member George Runner criticizes $10 billion tax on services

“Something visionary,” in Hertzberg’s view, is for state government to take “something more” from the state’s service workers. That means you’ll be paying “something more” every time you get a haircut, visit your accountant for tax help or call your lawyer.

taxesBoard of Equalization Member George Runner, who serves on the state board responsible for administering sales and use taxes, says Hertzberg’s plan is a massive tax increase masquerading as tax reform.

“Some California lawmakers want yet another $10 billion from the people,” said Runner, a former Republican state senator. “They want a broad tax on services. Everything from bank transactions to haircuts to movie tickets, and everything in between. This will not work.”

Runner says “California’s hard-working families cannot afford higher taxes,” a view that is supported by the state’s leading taxpayer organization.

“‘Tax reform’ which imposes a net tax increase of $10 billion isn’t tax reform at all,”
says Jon Coupal, president of the Howard Jarvis Taxpayers Association. “It is an insult to working Californians.”

Revenue for schools, local government

Hertzberg believes California needs a permanent solution to raise revenue when Proposition 30, a temporary sales and income tax increase of $7 billion passed by voters in 2012, begins to expire next year.

“We must once again provide Californians with the opportunity to thrive in the 21st century global economy beyond temporary solutions like Prop. 30,” he said.

SB8 would allocate:

  • $3 billion to K-14 education, which would go toward rebuilding classrooms and saving for teachers pension fund demands;
  • $2 billion to higher education, which would be split between the University of California and the California State University systems;
  • $3 billion to local governments, which could go towards “additional public safety, parks, libraries or local development” but will be left to “local governments to best meet the specific needs of their particular communities”;
  • $2 billion to low-income families in the form of a new earned income tax credit to “offset the burden of proposed sales and use tax on services”

It also opens the door to “altering” the corporate and personal income tax codes, possibly cutting their tax rates. However, in addition to providing few specifics, Hertzberg says those changes would be delayed.

“The latter provisions would be phased in when it is clear that new revenue from the service taxes is sufficient to replace revenue that would be lost by those changes — and is sufficient to provide low-income workers with an Earned Income Tax Credit,” Hertzberg wrote in a piece co-authored with Edward D. Kleinbard, a USC law professor, and Laura Tyson, a business school professor at the University of California, Berkeley and chair of the U.S. President’s Council of Economic Advisers.

Most small businesses won’t be spared

Unlike past attempts to tax services, Hertzberg has embraced an expansive tax base with limited exclusions for health care and education services as well as businesses with less than $100,000 in gross sales.

Lawyers, Cagle, July 27, 2013“Small businesses, like plumbing contractors, auto repair shops, and restaurants account for more than 90 percent of the state’s businesses and well over a third of all jobs,” Hertzberg said. “They are a key rung on the ladder of upward mobility.”

Yet, those small businesses are likely to be hit with the new sales tax on services. According to the U.S. Small Business Administration, the two most widely used size standards are “500 employees for most manufacturing and mining industries and $7.5 million in average annual receipts for many nonmanufacturing industries.” Other industry specific size-standards are:

  • Legal services — $11 million in average annual receipts;
  • Accounting and related services — $20.5 million in average annual receipt;s
  • Architectural services — $7.5 million in average annual receipts;
  • Engineering, surveying and mapping services — $15 million in average annual receipts;
  • Specialized design services – $7.5 million in average annual receipts.

According to a 2011 policy paper published by the California Budget Project, which generally favored expanding the sales tax to services, “[A]t the height of the Great Depression, policymakers feared taxing services, viewing it as a tax on labor that would discourage employment.”

SB8: Chance of passing?

What are the bill’s chances of advancing?

As with most other bills, the first hearing on SB8 has yet to be scheduled. CalWatchdog.com reached out to half a dozen Republican state lawmakers for their reaction to the $10 billion tax increase, several of whom had yet to read the bill. None was willing to comment.

“To be clear, this is not tax reform,” stressed Runner, the former GOP state lawmaker now at the state tax agency. “It is a massive tax increase.”

28 comments

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  1. Queeg
    Queeg 21 January, 2015, 17:28

    Comrades

    No one is out on the streets!

    This will cost a fortune to administer.

    Poor Horst, Julio, Rosita and Jennifer. Filling out those pithy papers on cupcakes, black smithing, tree feathering, apartment prep.

    Reply this comment
  2. eck
    eck 21 January, 2015, 18:24

    Another liberal politician who is a total economic ignoramus. I’m willing to bet he’s never done anything productive in his whole life. Probably a member of the parasite class (including most academics). I may be wrong (I’ll check it out) but he really doesn’t seem to have a clue.

    Reply this comment
  3. SkippingDog
    SkippingDog 21 January, 2015, 19:20

    Great idea and way overdue. It accurately reflects our modern economy.

    Reply this comment
  4. Hondo
    Hondo 21 January, 2015, 21:15

    We can’t breathe!!!!!!
    Stealing from people who aren’t gonna get a pension, and giving to people who are getting criminal sized pensions already.
    They are gonna send the NYPD to come choke you to death if you don’t pay. This is gonna bring social kaos.
    Hondo…….

    Reply this comment
  5. bob
    bob 21 January, 2015, 21:25

    Tax’em to the stoneage!
    Tax the shiite outta ’em!

    Reply this comment
  6. bob
    bob 21 January, 2015, 21:25

    Tax’em to the stoneage!
    Tax the shiite outta ’em!

    Reply this comment
  7. desmond
    desmond 22 January, 2015, 04:38

    He was a businessman, but is quite liberal. The services tax is coming at some point. I don t know if he proposes to lower other taxes, but net he wants to increase revenues so govt can work it’s magic, 60% poverty rate and 75 % med cal by 2025. Good times for security businesses, even with the taxes. Of course, govt may make the business illegal…can t infringe on one’s right to pilfer. Hey, that is no different from govt retirees.

    Reply this comment
  8. DavidfromLosGatos
    DavidfromLosGatos 22 January, 2015, 08:22

    Hawaii already does this (called General Excise Tax), and maybe other states do, too. But the Hawaii rate (sales or service – same rates) is usually 4% (some specific categories are more), instead of CA rate that is close to 10% once local counties added. Very little is excluded, if anything, so we are used to paying tax on gardener, car repair, groceries, dentist, (even lawyer!), etc.

    I agree that if government is going to enrich themselves off the economy, then might as well include services. CA already taxes “prepared food” (restaurants), so they already capture a big part of the service industry.

    Problem with California is that the Ca employees/politicians (at all levels, not just unions), have become entitled to a big chunk of whatever they can get their hands on, so the CA rates are too high, even if the “fairness” of having a “services tax” is not in itself an issue.

    Reply this comment
  9. NorCal Libertarian
    NorCal Libertarian 22 January, 2015, 08:54

    Here we go again…………….the above REASONS look good, but the state has a serious problem coming up with UNFUNDED LIABILITIES due to tax losses from companies LEAVING THIS STATE for BUSINESS-FRIENDLY states!
    It’s way past time for the State of Jefferson for we Northerners and rurals who are fed up with being ignored and taxed for things we won’t be using–like HSR and other things that are damaging our farms, ranches and construction companies due to CARB. If you live in the urban areas and are tired of these additional taxes, VOTE YOUR TAX-HAPPY representative out of office or……………get ready to move to a pro-business, Pro-American State of Jefferson!

    Reply this comment
  10. bob
    bob 22 January, 2015, 09:31

    Yet one more reason to leave this state.

    Reply this comment
    • Ted S--Your Leader
      Ted S--Your Leader 22 January, 2015, 13:23

      Oh BO BO— PLEASE don’t leave California! Nuts and Flakes help make this GREAT state what it is!

      Reply this comment
      • ricky65
        ricky65 23 January, 2015, 07:53

        Jeez, Teddy, you’re a two fer. An classic California example of a Nut and a Flake.

        Reply this comment
    • afrequentreader
      afrequentreader 22 January, 2015, 13:29

      bob – Don’t give Ulysses(ms?) a reason to comment, however I agree. 😉

      Reply this comment
    • Bill Gore
      Bill Gore 22 January, 2015, 14:06

      Before I left San Diego and moved my business and family to beautiful Central Oregon, I was talking to a friend from Escondido who is a contractor. I asked him if he ever thought about leaving California, he replied “a hundred times a day-every day”.
      Oregon has NO sales tax of any kind. Not gonna happen. Also has something called the ‘kicker’: when state revenues exceed the budgeted amounts, the state ‘kicks’ the excess back to the taxpayers. Usually doesn’t amount to much, but it’s the thought that counts…. 😉
      Y’all cmon up, super friendly and lots of sunshine too….

      Reply this comment
  11. bob
    bob 22 January, 2015, 12:53

    Up the state sales tax to 15% and apply it to everything, including ALL services.

    Of course the cities and counties can continue to apply their local sales taxes.

    Then up the marginal 9.3 tax rate that kicks in at around 48K to 15%.

    THEN DO YOU THINK THE LIBTARDS AND TROUGH FEEDERS WILL BE HAPPY???

    NOoooooo!

    After all we need to tax the shiite outta carbon…sooooo….up the gas and diesel tax another 75 cents a gallon ON TOP OF AB32 yearly tax increases.

    THEN DO YOU THINK THE LIBTARDS AND TROUGH FEEDERS WILL BE HAPPY???

    NOOOO!!!!

    After all property taxes are way too low so abolish prop 13 for all business then double the property taxes on ALL real estate.

    THEN DO YOU THINK THE LIBTARDS AND TROUGH FEEDERS WILL BE HAPPY???

    I doubt it. They ALWAYS come back for MORE.

    Reply this comment
  12. TruthandtheAmericanWay
    TruthandtheAmericanWay 22 January, 2015, 13:34

    Once again a major dumb SH*T CA liberal with ZERO financial skill sets because his / their only solution is abusive spending. The only guidelines they justify the ton of needless ‘feel good freebie programs’ is because they do not use empirical evidence before raising taxes without one iota of any comprehensive thought process. Moreover, the stupid statement of the ‘changing global economy’ does not cut the mustard. Really, what the hell does that statement mean? Seems it is just another silly unjustified non-supportable statement to make his / their ludicrous statement(s) have some validity in the dumbsh*ts factory of liberals? Between the guy in the WH and the 4-termer idiot in Sac who have no clue, we are on the brink of losing the tax base. Right now, the country is very close to that flip point. I guess Forest Gump was correct – “Stupid is as stupid does” is so justified for these mind numbed idiots in the democratic party. Just look where we are at today – in the huge hole with no fix on the horizon. PS: to all libs, yes not everyone is as dumb as you folks are and there are few on the other side of the fence; however, nothing like on your side.

    Reply this comment
  13. bob
    bob 22 January, 2015, 14:15

    These DemoNcrats are so unimaginative.

    There solution is always higher and more taxes.

    Instead how about having a pay per view mud wrestling match? This joker and Jerry tag team Big Sis? It would be a huge hit.

    They could start a new wrestling federation featuring all Colliefornia politicians and bureaucrats and have regular matches. It could generate tens of millions of dollars.

    Reply this comment
  14. Ted
    Ted 22 January, 2015, 16:32

    BoBO– you’re so brainy….mmmmmm

    Reply this comment
    • bob
      bob 22 January, 2015, 20:00

      Well, we all can’t be geniuses like you, Teddy.

      But admit it, Teddy. You’d pay cold hard cash to see Big Sis get down and dirty in the mud with Brownie and Hertzy. And you’d pay even more to see her give them the good old TSA feel up.

      Reply this comment
      • bob
        bob 22 January, 2015, 20:01

        Or how about they bring Janet Reno and Arnie out of retirement and have them tag team Big Sis and Brownie? It would be sold out and the money could go to the public schools…all for the children, of course.

        Reply this comment
  15. Dyspeptic
    Dyspeptic 22 January, 2015, 18:37

    I have a better idea. Kind of like Obushma’s free community college gimmick but on a bigger scale. LETS MAKE GOVERNMENT FREE. Every last, stinking, tyrannical, obnoxious, parasitic bit of it. That’s right, no charge. Gratis. A big fat, wonderful freebie. Everything you ever wanted or needed from government without having to pay for it. It’s the American way.

    But what about all of those poor government worker slobs you say? Well, since they are all selfless and compassionate lovers of humanity, I’m sure they wouldn’t mind a little hardship if it makes everyone else better off. Maybe they could just depend on the kindness of strangers. Why wouldn’t that work? The people of California care, oh how they care!

    To quote His Royal Lame Duckiness, Barrack Obushma, “It’s the right thing to do”.

    Reply this comment
    • bob
      bob 22 January, 2015, 20:02

      LETS MAKE GOVERNMENT FREE

      It would still be vastly over-priced.

      Reply this comment
  16. Ulysses Uhaul
    Ulysses Uhaul 22 January, 2015, 23:18

    The tenor of the above posts is so disappointing.

    Let’s be fair and balanced.

    There has to be a flatter and easier collectible tax system. Called use taxes.

    You use Julio’s taco wagon at a tony backyard gig you pay the use tax. You hire Tabetha to watch an elder you pay the tax.

    Maybe people will turn the clock back and practice domestic self sufficiency to save on use taxes. Obviously, we have become helpless…many cannot cook to feed themselves.

    Reply this comment
  17. Bill - San Jose
    Bill - San Jose 23 January, 2015, 13:26

    “During the past 60 years, California has moved from agriculture and a manufacturing-based economy to a services-based economy,” said Hertzberg

    Because of boneheads like you? That is the exactly why commies need to be prosecuted for falsely imprisoning the constituents they are supposed to represent and protect.

    Next topic about a holier than thou politicians who have never seen a day’s work in the life of a truly average Kalifornian.

    Reply this comment
  18. ValueCreater
    ValueCreater 25 December, 2016, 16:12

    Government comes in three flavors; Incompetent, Expensive, and Unnecessary.

    Reply this comment
  19. Iconoclast59
    Iconoclast59 28 March, 2017, 12:23

    What are the chances that legal services will be spared? i mean, most of our legislators are lawyers and they’re known for taking care of their own

    Reply this comment
  20. Barry Goldwater, Jr.
    Barry Goldwater, Jr. 14 November, 2017, 15:37

    This guy NEVER met a tax he did not love, and now a con he does not support. Tick of a career as a public ‘servant’ fatso get a REAL job

    Reply this comment

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