Subject: Studies in the News 03-19 (April 3, 2003)


CALIFORNIA RESEARCH BUREAU
CALIFORNIA STATE LIBRARY
Studies in the News:
Revenue, Taxation and Budgeting Supplement


Contents This Week

Introductory Material GENERAL GOVERNMENT
   Fiscal exposures in the budget process
   Misleading impression about tax cuts
   Explaining federal funding formulas
   State of California financial report
   Proposed budget's social and economic context
   Senate overview of state budget
   Republicans' proposal to balance budget
   Proposed budget and child care system
   Proposal to roll over state's debt
   Medicaid cuts jeopardize health insurance coverage
   States are making deep budget cuts
   State budget cutting strategies
   Board of Equalization regulation hearing
   State Earned Income Tax Credits
   How states are retaining estate taxes
   Proposed tax increases and other revenue measures
   Tax structure alternatives
   Total state and local business tax burden
   Tax burdens for families
   State retail sales taxes
   California's sales factor needs repair
   Improving revenue estimates
   Taxing business in the 21st century
   Case for public spending
   Exemptions in state taxes
   Continued weakness in state tax revenue
   Rewarding work with Earned Income Tax Credit
   Review of state tax burdens
   Uncollected sales tax arising from Internet growth
   Sales tax or value added tax
   Tax giveaways to corporations
PREVIOUSLY IN STUDIES IN THE NEWS
   Studies in the News, 03-09 (February 26, 2003)
   Studies in the News, 03-13 (March 7, 2003)
   Studies in the News 03-17 (March 25, 2003)
Introduction to Studies in the News

Studies in the News is a very current compilation of items significant to the Legislature and Governor's Office. It is created weekly by the State Library's Research Bureau to supplement the public policy debate in California’s Capitol. To help share the latest information with state policymakers, these reading lists are now being made accessible through the State Library’s website. This week's list of current articles in various public policy areas is presented below.

Service to State Employees:

  • When available, the URL for the full text of each item is provided.

  • Items in the State Library collection can be checked out to state officials and staff.

  • Access to all materials listed will be provided by the State Information Reference Center, either by e-mail to cslsirc@library.ca.gov or by calling 654-0261.

The following studies are currently on hand:

GENERAL GOVERNMENT

BUDGETING

Fiscal Exposures: Improving the Budgetary Focus on Long-Term Costs and Uncertainties. By The U.S. General Accounting Office. GAO-03-213. (The Office, Washington, DC) January 2003. 50 p.

Full Text at: www.gao.gov/cgi-bin/getrpt?GAO-03-213

["GAO recommends that the Office of Management and Budget report annually on fiscal exposures, including a concise list and description of such exposures, cost estimates, where possible, and an assessment of methodologies and data used to produce cost estimates for such exposures."]

[Request #S7678]

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FEDERAL BUDGET

Administration's Use of "Average" Tax Cut Figures Creates Misleading Impression About the Tax Cuts Most Households Would Receive. By Isaac Shapiro and Joel Friedman, Center on Budget and Policy Priorities (The Center, Washington, DC) January 15, 2003. 2 p.

Full Text at: www.cbpp.org/1-9-03tax.pdf

["The average tax cut is much larger than the tax cut a typical household would receive largely because, in generating these figures, the Administration has averaged the big tax cuts that those at the top of the income spectrum would receive with the far more modest tax cuts those in the middle of the income spectrum would get (and the small or non-existent tax cuts that would go to working families with low incomes)."]

[Request #S7701]

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FEDERAL GRANTS

California's Share of Federal Programs: Explaining Funding Formulas. By Tim Ransdell and Shervin Boloorian, California Institute for Federal Policy Research. (Public Policy Institute of California, San Francisco, California) December 2002. 247 p.

Full Text at: www.ppic.org/content/pubs/R_1102TRR.pdf

["This ongoing series of reports provides detailed information on the funding that California receives from the major federal grants and on the formula factors used to determine the state's share of specific grants."]

[Request #S7679]

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STATE BUDGET

State of California: Financial Report: Year Ended June 30, 2002. By the California State Auditor, Bureau of State Audits (The Bureau, Sacramento, California) February 2003. 146 p.

Full Text at: www.bsa.ca.gov/bsa/pdfs/2002-001R.pdf

["The financial statements show that the State's General Fund had revenues and other financing sources that were approximately $11.1 billion less than expenditures and other financing uses. The General Fund ended the fiscal year with a fund deficit of approximately $3.5 billion."]

[Request #S7680]

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Bridging the Gap: The Social and Economic Context of the Governor's Proposed 2003-04 Budget. By the California Budget Project. (The Project, Sacramento, Califonria) January 2003. 48 p.

Full Text at: www.cbp.org/2003/2003%20CHARTBOOKColor.pdf

["The Proposed Budget reflects $13.7 billion in current and budget year spending reductions, including $2.7 billion in proposed 2003-04 reductions.... The only major program area to escape significant reductions is Corrections.... The largest single 'gap bridging' proposal is a complex transfer of responsibility for health, social service, and court programs from the state to county governments."]

[Request #S7681]

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Overview of the 2003-04 Budget Bill. By the California State Senate Budget and Fiscal Review Committee. (The Committee, Sacramento, California) February 2003. 246 p.

Full Text at: www.sen.ca.gov/ftp/SEN/COMMITTEE/STANDING/BFR/_home/Overview.pdf

["The state faces an extraordinarily difficult budget problem in 2003. To deal with it effectively, the Legislature must put the budget in a context that clarifies the problem and possible solutions."]

[Request #S7682]

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Senate Republicans' Proposal to Balance the Budget Raises Questions. By the California Budget Project. (The Project, Sacramento, California) March 13, 2003. 5 p.

Full Text at: www.cbp.org/2003/senreppropsal.pdf

["The CBP analysis examines the proposal with an eye to its impact on vital programs and on future state budgets.... [It] finds that the Senate Republicans' proposal would require a suspension of the Proposition 98 guarantee in 2003-04; may require suspension in 2004-05; and would require reductions much greater than 7 percent -- and perhaps as high as 18.6 percent or higher -- for programs without constitutional or federal protections."]

[Request #S7692]

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How Will the Governor's 2003-04 Proposed Budget Affect California's Child Care and Development System? by the California Budget Project. Budget Brief. (The Project, Sacramento, California) March 2003. 7 p.

Full Text at: www.cbp.org/2003/0303childcare.pdf

["The brief analyzes the Governor's proposals to make sweeping changes to California's child care and development system. [It] finds that the proposal to eliminate CalWORKs Stage 3 child care will mean the loss of child care for approximately 55,000 children in families that have recently left welfare."]

[Request #S7698]

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A Plan to Balance the Budget Without Tax or Fee Increases By the California Senate Republican Caucus. February 26, 2003. 3 p.

Full Text at: republican.sen.ca.gov/opeds/99/oped1670.asp

["GOP Offers Rival Budget Plan; Senators Seek $5 Billion in Extra Cuts, Borrowing to Roll Over State's Debt, but No Tax Increases: The Republican proposal calls for reducing annual spending by more than $5 billion in addition to what Davis has already suggested. Nearly every state program would see its revenue cut by 7%. Once that is accomplished, a spending freeze would be enacted to keep the state from running a deficit." Los Angeles Times (February 27, 2003) A1.

[Request #S7711]

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STATE BUDGETS

Proposed State Medicaid Cuts Would Jeopardize Health Insurance Coverage for 1.7 Million People: An Update. By Melanie Nathanson and Leighton Ku, Center on Budget and Policy Priorities (The Center, Washington, DC) March 21, 2003. 17 p.

Full Text at: www.cbpp.org/3-20-03sfp.pdf

["Budget reductions adopted or proposed in 22 states would lead to the elimination of Medicaid, SCHIP, or related public health insurance coverage for 1.7 million people, if all the proposals are adopted.... In addition, a number of states are proposing to shift some costs to beneficiaries by raising copayments, even though many of the affected beneficiaries have incomes below the poverty line."]

[Request #S7683]

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States Are Making Deep Budget Cuts In Response to the Fiscal Crisis. By Nicholas Johnson, Iris J. Lav and Rose Ribeiro, Center on Budget and Policy Priorities (The Center, Washington, DC) March 20, 2003. 5 p.

Full Text at: www.cbpp.org/3-19-03sfp.pdf

["This brief analysis provides examples of the increasingly painful reductions in public services that states are enacting in the current fiscal year, as well as a first look at some of the cuts governors are proposing for the upcoming fiscal year."]

[Request #S7684]

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Show Me the Money: Budget-Cutting Strategies For Cash-Strapped States. By Willilam D. Eggers. (Deloitte Consulting, San Francisco, California) 2003. 24 p.

Full Text at: www.manhattan-institute.org/state_budget_report.pdf

["As hard as it is to fathom, state budget problems in fiscal year 2003 will be even worse than they were in 2002. This study seeks to provide budget-cutting strategies that will address current budget shortfalls as well as much-needed medium- and long-term reform in state finances."]

[Request #S7685]

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STATE TAXES

Revenue Estimate: Public Hearing to Adopt Proposed Regulation 1671.1; Proposed Staff Revisions. By the Board of Equalization. (The Board, Sacramento, California) December 18, 2002. 5 p.

Full Text at: www.boe.ca.gov/regs/reg1671-1revest.pdf

["Manufacturer Rebates May Cost State: The potential problem comes when retailers get payments from manufacturers to discount certain products, known as 'buy-down' rebates.... The state's tax board interprets the law to say that the rebate should be added to the price paid by the customer.... If the taxes aren't being remitted to the state, the potential loss to the treasury is in the millions just for cigarettes." Sacramento Bee (January 21, 2003) A3.]

[Request #S7686]

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A Hand Up: How State Earned Income Tax Credits Help Working Families Escape Poverty in 2003: Summary. By Nicolas Johnson and others, Center on Budget and Policy Priorities (The Center, Washington, DC) March 3, 2003. 7 p.

Full Text at: www.cbpp.org/3-3-03sfp.pdf

["Some 4.8 million people, including 2.6 million children, are removed from poverty as a result of the federal Earned Income Tax Credit (EITC).... The success of the federal EITC has led a number of states to enact state Earned Income Tax Credits that supplement the federal credit."]

[Request #S7687]

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How States Are Retaining a State Estate Tax: Legislative Language Used. By Elizabeth McNichol, Center on Budget and Policy Priorities (The Center, Washington, DC) March 17, 2003. 5 p.

Full Text at: www.cbpp.org/3-17-03sfp.pdf

["Under the federal law enacted in June 2001, the credit for state 'death taxes' paid will be reduced to zero by 2005. As a result, the estate taxes of states that tie their estate taxes to the amount of the state credit allowed under federal law will be eliminated if they make no changes in their estate tax law."]

[Request #S7688]

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Many Governors Are Proposing Tax Increases and Other Revenue Measures: Increases Are Necessary to Protect Basic Services. By Nicholas Johnson, Center on Budget and Policy Priorities (The Center, Washington, DC) March 19, 2003. 6 p.

Full Text at: www.cbpp.org/2-6-03sfp.pdf

["Enacted increases and proposals in 22 states include increases in income taxes, sales taxes, corporate taxes, and/or excise taxes, and they include both raising rates and broadening tax bases.... If other types of revenue-increasing measures -- such as fee increases, postponements of previously enacted tax increases, expansions of gambling, and others -- are included, then at least 34 of the 41 governors' budgets submitted so far rely on some revenue actions to help achieve balance in state budgets."]

[Request #S7689]

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TAXATION

Tax Alternatives for Washington State: A Report to the Legislature. By the Washington State Tax Structure Study Committee. (The Committee, Olympia, Washington) December 2002. Various pagings.

Full Text at: dor.wa.gov/Content/WAtaxstudy/Final_Report.htm

["An important finding about the Washington State tax system is that high-income households pay a lower percentage of taxes compared to other households.... [The report] outlines a number of major and minor alternatives that the Legislature could implement to bring Washington's tax system into the twenty-first century."]

[Request #S7690]

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"A Closer Examination of the Total State and Local Business Tax Burden." By Robert Cline and others. IN: State Tax Notes, vol.27, no.4 (January 27, 2003) pp. 295 - 301.

["Corporate profits declined by 8 percent between 1999 and the middle of 2002, but state and local taxes on business rose by 6 percent over the same period. Business taxes have increased even during a time of falling corporate profitability because corporate income taxes are but one of the many taxes paid by businesses to state and local governments."]

[Request #S7691]

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Class Warfare Fact And Fiction: Myth 1 -- The Rich Deserve Most of the Tax Cuts Because They Pay Most of th Taxes. By Bernard Wasow, The Century Foundation (The Foundation, New York, New York) Feruary 13, 2003. 3 p.

Full Text at: www.tcf.org/Publications/Issue_Briefs/ClassWarfare/myth1.pdf

["Overall, our tax system is far less progressive than the federal income tax viewed in isolation. The share of the total tax burden carried by high-income families is much smaller than their share of income taxes alone. By focusing on income tax cuts, and on cuts at the top, at that, advocates of the proposed tax cuts conveniently ignore the taxes that actually burden the majority of taxpayers."]

[Request #S7693]

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"State Retail Sales Taxes, 1999 - 2001: The Recession Hits." By John L. Mikesell, School of Public and Environmental Affairs, Indiana University. IN: State Tax Notes vol. 27, no. 6 (February, 10, 2003) pp 489 - 499.

["Even as the sales tax remains under the still-unresolved cloud of untaxed sales by remote vendors, particularly selling through the Internet, the retail sales tax continues as the second largest source of tax revenue to state governments .... The tax was the most significant revenue producer in 10 of the 38 states levying both sales and broadbased income taxes. This total is down from 19 states as recently as 1996."]

[Request #S7694]

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"California's Sales Factor Needs Repair." By Kathleen K. Wright, California State University, Hayward. IN: State Tax Notes, vol. 27 no. 2 (January 13, 2003) pp 143-146.

["California has run out of money. The state is looking for any source of funds out of which it may be able to wring a few more dollars to balance the budget. Every angle is being considered, old concepts are resurfacing, and new ideas are desperately being sought. One idea that keeps coming back for discussion is a more heavily weighted sales factor in the apportionment equation, possibly going all the way to a single sales factor."]

[Request #S7695]

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Reforming the Federal Tax Policy Process. By David R. Burton, Argus Group. Cato Policy Analysis. No. 463. (Cato Insitute, Washington, DC) 2002. Various pagings.

Full Text at: www.cato.org/pubs/pas/pa463.pdf

["The data that Congress use when writing new tax policy are biased and provide policymakers with inaccurate and incomplete revenue estimates. The changes David R. Burton suggest would increase the accuracy of the estimates, improve transparency of the process, and create more oversight in the development of tax policy." ]

[Request #S7697]

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"A Question of Balance: Taxing Business in the 21st Century." By Mary E. Forsberg, New Jersey Policy Perspective. IN: State Tax Notes vol. 27, no. 5(February 3, 2003) pp. 377-400.

["The convergence of scandals that diminished the awe in which business is sometimes held and a deep shortfall in the state budget brought about a political moment that New Jersey seized by overhauling its corporate business tax system. As the report describes in detail, the changes were hard fought and are by no means assured of being permanent"]

[Request #S7699]

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The Big Fix: The Case For Public Spending. By James K. Galbraith, The Levy Institute, Bard College. Policy Note 2003/1. (The Institute, Annadale-on-Hudson, New York) 2003. 3 p.

Full Text at: www.levy.org/docs/pn/03-1.html

["Tax cuts aimed at the middle class might keep its spending going for a time, ... but lowering taxes on profits and capital gains by no means ensures the American corporations will rev up their investments.... State and local government spending on schools, health care, the environment, and core services is deeply needed and well supported."]

[Request #S7700]

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"Reducing the Nuttiness of State Taxes and Draining the Swamp: What California Should Do." By Carles E. McLure, The Hoover Institution, Stanford University. IN: State Tax Notes, vol. 27 no. 2 (January 13, 2003) pp 127-130.

["The California sales tax and the sales and income tax systems of the nation need to brought into the modern age. California can do the former by exempting most sales to business and eliminating most other sales tax exemptions."]

[Request #S7702]

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"Continued Weakness in State Tax Revenue." By Nicholas W. Jenny, Fiscal Studies Program, Nelson A. Rockefeller Institute of Government. IN: State Tax Notes, vol. 27 no. 2 (January 13, 2003) pp. 131-142.

["While the general economy shows signs of recovering, employment is still declining. Personal income tax collections are still down, and the outlook for next April is uncertain. There is also some evidence that retail sales were weaker in the early part of the fourth quarter, a bad sign for sales tax revenue."]

[Request #S7703]

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Rewarding Work Through the Tax Code: The Power and Potential of the Earned Income Tax Credit in 27 Cities and Rural Areas. By Alan Berube. Center on Urban and Metropolitan Policy. (The Center, Washington, DC) 2003. 44 p.

Full Text at: www.brookings.edu/es/urban/publications/berubetaxcode.pdf

[“A movement is underway across the United States to leverage the full potential of federal and state income tax credits to make work pay for low-income families and communities.... The survey concludes with a set of recommendations and examples that demonstrate how local leaders can enhance the economic benefits that the EITC and related credits provide to working families and their neighbohoods."]

[Request #S7704]

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Who Pays? A Distribution Analysis of the Tax System in All 50 States. By Robert S. McIntyre and others. The Institute on Taxation and Economic Policy. (The Institute, Washington, DC) January 2003. 127 p.

Full Text at: www.itepnet.org/wp2000/text.pdf

["This study looks at the state and local taxes paid by each income group in 2002.... Our primary finding is that most state and local tax systems take a much greater share of income from middle- and low-income families than from the wealthy. That is, most state tax systems are regressive."]

[Request #S7705]

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TAXES

A Current Calculation of Uncollected Sales Tax Arising from Internet Growth. Peter A. Johnson, The Direct Marketing Association (The Association, New York, New York) March 11, 2003. 30 p.

Full Text at: www.the-dma.org/taxation/CurrentCalculationofUncollectedSalesTax.pdf

["The analysis ... focuses on the real impact of e-commerce on uncollected sales taxes, arguing that it is primarily the Internet's potential substitution of out-of-state for in-state sales that matter for the question of uncollected sales tax, and thus might warrant a change in the definiation of nexus.... Such a change to the definition of nexus would make it possible for states to require out-of-state sellers in the United States to collect their remote sales taxes ('use taxes') for all taxable transactions regardless of whether such sellers had a physical presence (physical nexus) in the taxing jurisdiction."]

[Request #S7706]

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"Subnational Taxing Options: Which Is Preferred, A Retail Sales Tax or VAT?" By William F. Fox, University of Tennessee and LeAnn Luna, University of North Carolina. IN State Tax Notes, vol.27, no.10 (March 10, 2003) pp. 875 - 884.

["Several prominent politicians have recently proposed that the United States replace or supplement the current national income tax system with a consumption tax, such as the value added tax (VAT) or retail sales tax (RST)....This report examines the case for combining a national VAT with a subnational VAT versus a national VAT with a subnational RST."}

[Request #S7707]

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Protecting Public Education from Tax Giveaways to Corporations: Propert Tax Abatements, Tax Increment Finacing, and Funding for Schools. By Greg LeRoy and others, Good Jobs First. IN: State Tax Notes, vol. 27, no. 11 (March 17, 2003) pp. 975 - 1003.

["This study focuses on an important aspect of education funding -- property taxes and the policies that shape them.... This report probes state and local governments' increasing support of corporate property owners through grants of long-term property tax abatements and diversion of property tax revenues for tax increment financing."]

[Request #S7708]

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PREVIOUSLY IN STUDIES IN THE NEWS
[This section links to items in Studies in the News since the last Revenue, Taxation and Budgeting Supplement.]

"General Government." IN: Studies in the News, 03-09 (February 26, 2003).

Full Text at: http://www.library.ca.gov/SITN/2003/0309.htm

[Includes: "Fiscal relief for states;" "Federal budget reducing state revenues;" "Federal budget measures for California;" "Funds from federal grants;" "Internet gambling revenues;" "State and local spending;" "Federal bailout for states;" "LAO report on budget;" "Key provisions in state budget;" "Mid-year budget cuts in many states;" "Federal budget cuts;" and others.]

[Request #S7709]

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"General Government." IN: Studies in the News, 03-13 (March 7, 2003).

Full Text at: http://www.library.ca.gov/SITN/2003/0313.htm

[Includes: "Economic down turns and rising unemployment;" "The states' fiscal mess;" "Market value of commercial property;" "California perspective on federal appropriations;" "Proposed tax savings incentives;" "Federal grants for states;" "Assessing the Governor's budget;" "State taxation;" and others.]

[Request #S7710]

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"General Government. And Economy. IN: Studies in the News 03-17 (March 25, 2003).

Full Text at: http://www.library.ca.gov/SITN/2003/0317.htm

[Includes: "Boosting revenues from gaming industry;" "Regional economic forecasts subdued;" "Outlook from Federal Reserve Board;" and others.]

[Request #S7712]

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