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Car makers launch late drive challenging Gavin Newsom’s plan to close California tax breaks

Tax reform is ‘profoundly difficult’ in California, Gavin Newsom says

Lt. Gov. Gavin Newsom told The Sacramento Bee editorial board in February that he's in favor of extending a temporary tax increase.
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Lt. Gov. Gavin Newsom told The Sacramento Bee editorial board in February that he's in favor of extending a temporary tax increase.

Car makers are launching a last-second drive to challenge a proposal by California Gov. Gavin Newsom that would close a set of business tax benefits that collectively would raise about $1.4 billion a year for the state.

One item in the package would cost car makers more than $100 million a year, according to a letter the Alliance for Automobile Manufacturers and the Association of Global Automakers sent to Newsom late last month. The organizations lobby for domestic and foreign car manufacturers.

“It is unreasonable to expect a small number of companies in one industry to carry such a large proportion of the burden,” the carmakers wrote.

They reiterated their worries at legislative hearings this week where lawmakers advanced Newsom’s proposal.

Newsom’s plan would eliminate the car makers’ tax break by bringing California’s tax code into partial conformity with the Tax Cuts and Jobs Act, the 2017 federal tax overhaul that President Donald Trump signed.

Newsom’s administration characterizes the changes as helpful to businesses in general because they would making filing taxes somewhat easier. The California Business Roundtable supports the proposal, and taxpayer advocates at the California Taxpayers Association are neutral on it.

Among many other changes, the 2017 federal tax law ended so-called like-kind exchanges, which are important to car makers because they allow businesses to avoid paying tax on the sales of vehicles they trade in.

Businesses count on the exemption when they order new cars and trucks. They’d lose that exemption if the Legislature approves Newsom’s proposal.

The car makers are the first companies to step forward and lobby against it. Their letter to Newsom says the federal tax law offset the loss of like-kind exchanges by expanding a different tax break that is not included in the California proposal.

Lawmakers at an Assembly hearing this week said they had not heard of the companies’ concerns until this week even though Newsom has aired his proposal since January and car makers approached the governor last month.

“I have not heard from those folks until today,” Assemblywoman Autumn Burke, D-Marina del Rey, said on Monday at Assembly Revenue and Taxation Committee hearing. She is the chairwoman of the tax committee.

The tax proposal is moving forward as a bill attached to the $214.8 billion state budget that the Legislature approved last week. It could become law by July 1 if it reaches Newsom. The Senate on Monday approved it and it is awaiting a vote in the Assembly.

Newsom wants to use money generated by tax conformity to expand a benefit for very low-income households called the earned income tax credit. It provides up to $2.,559 a year for certain households, and Newsom wants to make more families eligible for it. His proposal would triple spending on the earned income tax credit, rising to about $1.2 billion a year from the $352 million the state spent on the benefit in 2017.

Expanding the tax credit is an easier sell for Democratic lawmakers than closing the tax breaks.

“These are working poor who are struggling. They need this help and they have earned it,” Burke said.

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