Business Update with Mark Lacter

Revenue dilemmas

KPCC business analyst Mark Lacter talks about how state and local governments in California struggle to raise revenue.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, there seems to be a sense of desperation as state and local governments look to find sources of revenue.

Mark Lacter: Desperaton is the word Steve. Budget cuts alone aren’t the answer and trying to raise revenue is really hard, as Gov. Brown has been discovering. One of the ideas getting attention this week in Sacramento is something called the "Amazon tax." Major online retailers would be required to collect state sales taxes from California shoppers. Actually, they've been trying to pull this off for several years; former Gov. Schwarzenegger vetoed similar legislation. Up to now, California hasn’t been able to force online retailers to charge sales tax (that goes back to a Supreme Court ruling in 1992), and that means the state has been losing some serious money - estimates range from $500 million a year to $1.4 billion.

Julian: But it's more than just tax revenue, isn't it? Brick and mortar retailers have a huge stake in this.

Lacter: Exactly. Shoppers come into their stores, scope out the items they're interested in, and actually buy the product online because they don't have to pay any sales tax. But the biggest of the online retailers, Amazon, says that the sales tax requirement is unconstitutional, and in fact the company has threatened to cut off its relationships with 10,000 businesses in California that do work with Amazon - many of them are small businesses that redirect their customers to Amazon to make a purchase and then they get a little piece of the action. All that supposedly would end - as it has in three other states that passed similar legislation.

Julian: Any idea how this might play out?

Lacter: Well, the bill must still get passed the legislature, and already there have been a few hiccups. But you can expect the lobbying to be intense, and it just goes to show how difficult it is to generate additional tax revenues for the state, even when the idea seems reasonable enough.

Julian: Speaking of raising revenue, dare I ask about raising the state gas tax?

Lacter: You’re kidding, right? With $4 a gallon prices, I have this sneaking suspicion that a higher fuel tax is not going to go down very well. But the truth is that California prices could be even worse than they are this week. That's because last summer the state changed the way it determines gasoline taxes. This was part of the gimmickry that was used to balance the budget, and what they did, in a nutshell, was double the motor vehicle fuel tax to a flat 35 cents a gallon. But they also lowered the sales tax to just two-and-a-quarter percent. The upshot is that consumers end up paying more in taxes when the price of gas is low. When gas prices are high, they pay proportionately less. Now there are plenty of folks who believe that gas taxes should be even higher, not only because it would raise revenues, but because it would provide a strong motivation to take mass transit or buy a more fuel-efficient car. Of course, good luck convincing voters that $6-a-gallon gas would be in their best interest. And in many ways, they're right, certainly short term.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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