His survey title asks and answers a question: “Want budget stability? Property taxes may be the answer.” He writes:

Since the early 1990s, we’ve lived through the boom and bust cycles of the California budget. Today, we are more dependent than ever on personal income taxes. And those taxes are more progressive than they have been in years, meaning our economic stability is tied to the fate of the wealthy .

The top 1% pays more than 50% of our income taxes. And income taxes account for two-thirds of the state budget.

There’s been some suggestion from Sen. Robert Hertzberg and others that expanding the sales tax would stabilize our tax base. That approach was rejected when it was recommended by the Parsky Commission in 2009, but Hertzberg wants to have the conversation again.

Another possibility is moving toward a system that is more property-tax based.

He notes that, according to data from the Legislative Analyst, property-tax revenue is a lot more stable than income-tax and capital-gains-tax revenues. During good times, income and cap gains rise quickly, filling state coffers. But during recessions, they drop sharply, causing the infamous budget deficits, which ran to $20 billion during the last years of Gov. Arnold Schwarzenegger’s administration, 2010 and 2011.

The deficits then bring tax increases, largely on income. In 2009, Schwarzenegger increased taxes a record $13 billion. That lasted two years. But Gov. Jerry Brown then pushed through the $7 billion tax increase of Proposition 30 in 2012.

York notes:

Since 1978, the state’s property tax revenues have fallen below the previous year’s totals only twice – with 1% drops each in 2009-10 and 2010-11, as the state coped with the housing crash.In all, there’s been an average of 5% annual growth in property tax revenues over the last 20 years, with the largest single year increases coming in 2005-2007, during the state’s housing boom. (To learn all you ever wanted to know about the state’s property tax, check this primer from the LAO).

Politics

Of course, aside from whether this is a fiscally sound idea, the politics is that Proposition 13 would have to be repealed, or severely modified. The 1978 tax limitation measure remains part of the warp and woof of California politics even as the state’s voters have become more liberal.

The Howard Jarvis Taxpayers Association, named after the firebrand who sparked the initiative, remains dedicated to defending Prop. 13. So far, and likely for the foreseeable future, it has thwarted any attempts at changing it significantly.

York concedes:

Of course, considering such a system means changing Proposition 13 and Proposition 98, a virtual political hornet’s nest. But part of the idea of this project is to get past the knee-jerk emotional political reactions in hopes of having an honest discussion about whether these ideas are good for the state. If there is strong leadership and a sustained effort to educate, voters can be convinced to go along. The campaign for Proposition 30 proved that.

Except Prop. 30 was sold as taxing rich people to fund schools — and was temporary for seven years (unless it ends up being extended).

Changing Prop. 13 along any significant lines would bring back the horror stories of grandmas turned out of their homes by the grim reaper known as the property-tax assessor.

Gann Limit

Actually, there was a better way to even out spending and taxing: The Gann Limit, which was enacted in 1979, with the support of Gov. Jerry Brown, as a companion measure to Prop. 13.

It limited increases in spending to the increases in population plus inflation. It worked great in the 1980s, until it was repealed by misguided voters in 1990 with Proposition 111. York himself pegs 1990 as the year things went haywire.

The Gann Limit even produced a rebate to taxpayers in 1987. The mechanism was faulty: an expensive mailing of checks to taxpayers. A better idea would have been to just cut taxes for the next year.

Finally, there is another tax reform that would end the volatility problem: A flat tax of about 5.5 percent of income, with no deductions. Brown actually supported a national flat tax when he ran for president in 1992.

Are those reforms — bringing back Gann or a flat tax — just as unrealistic as gutting Prop. 13? Alas and alack, probably.

By Brian Calle and Josephine Djuhana

It should come as no surprise that the economic growth rates and prosperity for states with excessive regulations and taxes are much lower when compared to states with fewer regulations and modest taxes. Incentives, such as low taxes and humble regulations, attract business and investment, which in turn spur economic benefits and job growth. It is not Republican or Democrat, liberal or conservative, “it’s just good economics,” as Arthur Laffer, noted economist and economic advisor to former President Ronald Reagan, likes to say.

California lawmakers ought to take note.

Laffer’s new book, “Eureka! How to Fix California,” was commissioned by the Pacific Research Institute, CalWatchDog.com’s parent think tank. The former California resident attempts to knock some sense into the political class in Sacramento, urging policy makers to focus on good economics instead of politics as usual. He wrote the book, he said, to create a blueprint for reforming California— to put the once Golden State back on a path of prosperity.

Laffer looked at various state economic data and found some significant disparities between states that instituted progressive income tax policies versus those that did not—particularly the gap in state growth between states with income taxes and states with none.

Eleven states introduced progressive income taxes within the past fifty years—Connecticut, New Jersey, Ohio, Rhode Island, Pennsylvania, Maine, Illinois, Nebraska, Michigan, Indiana and West Virginia. And of the 11, all states declined as a share of the U.S. economy. Michigan’s economy, for example, was at 5.08 percent of the US economy in 2005; that percentage slid to 2.64 percent in 2010. Like Michigan, Ohio’s wealth diminished as a result of similarly poor economic policies, Laffer argues. “The only things that still look nice in Ohio are the public government buildings,” remarked Dr. Laffer, during a recent stop on his book tour in Orange County.

Laffer also explores migration patters between states with varying tax rates; comparing “right-to-work” states—states where employees retain the right to decide whether or not to join or financially support a union—and “forced unionism” states—where an individual must pay union fees as a condition of employment and has forced union representation.

Right-to-work growth

In right-to-work states, Laffer found more economic growth, while “forced union” states trended the opposite direction.

The 22 right-to-work states experienced a 52.83 percent jump in gross state product; on the other hand, the 28 “union-shop” states had a 41.72 percent gross state product growth, less than the 46.61 percent US average.

“Right-to-work” states also trumped their forced-union counterparts in personal income growth, payroll employment growth, population growth and net domestic in-migration. Part of the reason that the growth gap is so large is that employers have a tendency to move away from forced-union states, not just to scale back wages and salaries, but also to avoid intrusive union rules, lawsuits, work stoppage threats and more.

Laffer’s proposal to reform California’s tax system should come as no surprise for those who have followed his work. He calls for a flat tax for the state of California; one simple tax on net business sales, and another on personal unadjusted income. His proposal does call for keeping “sin taxes” on the books, those taxes on cigarettes, etc., that are more meant to alter behavior than to raise revenues. Those concerned with the role of government in legislating personal decisions might argue that such sin taxes ought to be ousted as well.

California’s current tax system causes much unsettling volatility in state tax income year-to-year by making budgeting at the state level often incoherent. For example, in 2001, income from capital gains taxes (and other onetime revenues) made up a quarter of state tax revenue, according to Laffer.

And California has so many taxes (Laffer stopped counting after he studied 162 of them) that the tax code is overwhelmingly and unnecessarily complex, hence Laffer’s push to simplify it.

Looking at Sacramento today, though, there appears to be no political will in the legislature or with Gov. Jerry Brown to reform the tax code and especially institute a flat tax. Laffer dismisses that, noting that, when Brown ran for president in 1992, Brown proposed a national flat tax, making it part of his platform in the Democratic primary. “He was the first prominent presidential candidate to ever propose a national flat tax,” Laffer said. Optimistically, Laffer argues that, given the right situation, Brown could be amenable.  We shall see. Brown, this time around, seems more beholden to public employee unions than during his previous stint as governor.

“Political partisanship is ruining the politics of our country,” Laffer concludes. Fixing California requires a nonpartisan effort to eliminate excessive taxes and regulations, and to create a business-friendly environment that encourages economic activity. Laffer’s blueprint, in short, challenges California politicians to put partisanship aside and embrace simple economics.

By JOHN SEILER

Now is the time for the innovative Gov. Jerry Brown of the 1970s to step forward and push aside the union hack who has impersonated him in the governor’s office since the January 3 inauguration.

With the unexpected windfall of $6.6 billion in additional revenue for the California state budget, this is the time for comprehensive reform of the budget process. The positive revenue development is coupled with the continued dire straits of the overall budget.

The 1970s Gov. Brown would have embraced the challenge — and run with it. But like a cheesy 1970s zombie movie — “Omega Man” was a classic — his body is still there but his original mind isn’t.

The additional revenue is projected in Brown’s May Revise, released Monday, to his January budget proposal. Brown originally called for $12 billion in tax increases to help close the state’s budget deficit. With the $6.6 billion windfall in new revenues, he could have reduced that to $5.4 billion in new taxes — or even $5.4 billion in additional budget cuts, with no tax increases.

Instead, he wants to use the windfall partially to fund $3 billion in more spending for schools — and for future bond projects the state doesn’t even need.

He also is projecting continued strong revenues well into the future, making the same mistake governors keep making in assuming that we won’t get stuck in another recession. But the with the housing market still declining, and inflation taking off, the current “recovery” is like a castle built in the Malibu sand.

The problem, as many have observed for decades, is that California depends too much on the revenues of rich people. When the economy roars, rich folks’ incomes and investments soar, with California raking off heavy revenues from the state’s top tax rate on those activities of 10.3 percent. (Last year it was 10.55 percent.)

But when markets crash, the rich see their investments and incomes drop sharply. Which in turn crashes state revenues.

Prop. 13

Numerous solutions have been put forward over the years. Many in and out of government continue to pine for the property tax revenues lost because of 1978’s Proposition 13. But Prop. 13 retains vast support across the state. Few people want to go back to the conditions of the mid-1970s, when retired folks were losing their homes due to soaring property tax levies.

Sometimes what’s called a “split roll” is advanced by tax-increase advocates. It would keep Prop. 13 in place for residential properties, but cancel it for business properties.

As my colleague Steven Greenhut wrote on CalWatchDog.com earlier this month, “There’s already a low-level push in the Legislature for a split-rolls property tax that would remove Prop. 13 protections from nonresidential properties.”

That’s unlikely to happen. But if it did, among other problems it would vastly increase lobbying in the Capitol as businesses worked for exemptions to the higher property taxes — and many would get them. Defense businesses would plead, “We need the regular property tax rate or prices would be higher on our equipment and weapons. That would lead to fewer of our great products being used by the troops, meaning more brave young American heroes would come home in body bags. You would have their blood on your hands.”

Environmentalists would be next in line, pleading, “Unless we get the old Prop. 13 tax rate, our products won’t be used enough, and the environment will be polluted much more. The planet will be doomed.”

Tax Jiu-Jitsu

In this environment, what Brown needs to do is perform tax jiu-jitsu. He needs to flip the debate on its head.

The best way he could do that would be to bring up a tax reform idea he’s familiar with: the flat tax. He knows the reform well because he campaigned for a national flat tax in his 1992 presidential bid.

Reported the San Francisco Chronicle:

As a 1992 Democratic presidential candidate, Brown advanced the idea of a flat 13 percent tax rate for all Americans. Brown took some criticism from the media back then for allowing no low income exemptions for the poor in his plan — but the Democratic presidential candidate insisted then that “with it, stock markets will go through the roof, businesses, will thrive and millions of Americans will get back to work.”

Brown’s 1992 flat-tax reform was authored by Arthur Laffer, the economist who helped devise the 1981 Reagan tax cuts that produced almost 30 years of prosperity for America. Laffer also has devised a flat-tax plan for California. Although Brown has not embraced the plan, I wrote about it last year here on CalWatchDog.com:

“A flat tax would stop all these companies from moving from California,” he told me, by simplifying and lightening the tax load on both businesses and persons. It also would end the boom-bust volatility of tax receipts, which in boom times leads to wild spending that, in bust times, must be paid for with higher taxes that punish income producers. The days are long gone when California’s balmy climate was enough to prevent companies from leaving for Nevada, Texas and other states with better tax rates.

Laffer’s Flat Tax Proposal

Laffer’s proposal is simple. It would be enacted through a constitutional amendment passed by a majority of voters. The details:

1. Get rid of all other state and local taxes: property taxes, sales taxes and gas taxes.  The only exception would be “sin” taxes, such as those on cigarettes, because those are designed to change behavior.

2. Institute two taxes:

A flat income tax of between about 6.4 percent and 6.9 percent. The only deductions would be for a mortgage or rent in the place of principal residence, and for charitable contributions.

A tax on business net sales calculated this way: total sales less purchases from other companies. Its rate would be the same as for income: between about 6.4 percent and 6.9 percent. The tax is the same as a value-added tax(VAT). But Laffer told me that there’s this big difference: In Europe and other places, a VAT is imposed on top of other taxes, so it’s a mess. In California, it would be the only state business tax of any kind.

Unique Opportunity

This is the time for the 1970s Jerry Brown — the real Jerry — to step forward and embrace this unique opportunity for instituting a flat tax in California. He is uniquely positioned to lead the state out of the boom/bust cycle of elation and despair that wrenches the budget and economy every few years.

Right now, the state is enjoying a rare period of an even keel, where things are getting better — but not too much better.

Moreover, it’s unlikely that Brown’s successor as governor will have the same chance he does to get thing straight — and flat — on the budget. As another former California governor once declaimed: If not us, who? And if not now, when?