California's Future Tax System

THE CALIFORNIA Journal of Politics & Policy Volume 2, Issue 3 California’s Future Tax System* Alan J. Auerbach University of California, Berkeley Abstract California’s fiscal problems go well beyond the design of its tax system, but its tax system has contributed to these problems. The nature of this contribution is subject to dispute. California’s tax system is clearly not the outcome of a coherent design process, but more the result of a combination of historical inertia and political and legal constraints. Certain improvements to the tax system cannot be contemplat- ed without legal changes at the state or federal level; others would involve sharp breaks with the past and with common practice in other states. In this paper I review the structure of California’s tax system and consider the various criticisms to which it is subject. I also discuss the most recent organized attempt to reform California’s tax system by the Commission on the 21st Century Economy. Keywords: California budget, tax reform, fiscal oversight, economic growth * This is a revised version of a paper presented at a conference, “Too Big to Fail? Reforming California’s Constitution for the 21st Century,” held at USC, February 16-17, 2010. I am grateful to participants at the conference for their comments and suggestions. www.bepress.com/cjpp