The Capitol’s denizens have proved that when they are motivated, they can act quickly on legislation.
It took just a week for an agreement on raising the state’s minimum wage to be drafted, enacted by the Legislature and signed by Gov. Jerry Brown.
However, the fast action on minimum wages also demonstrates just how laggard the Capitol has been on an issue of comparable importance to tens of thousands of mostly low- and moderate-income California families – tax relief on “phantom income” that they incur when lenders write down underwater mortgages through short sales or other measures.
Technically, mortgage reduction is taxable income, but the federal government has consistently excluded it from taxation on the quite reasonable assumption that it would be an untenable hardship for families already in financial distress.
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The state’s record is, to say the least, spotty. It has enacted a state income tax exclusion sporadically, usually just one year at a time, and usually too late to meet income tax filing deadlines, forcing those affected to file amended returns.
Action was stalled three years ago by a complex, and unsuccessful, maneuver to compel the state’s real estate industry to accept a transaction tax to support low-income housing.
Last October, Brown vetoed a relief bill that would have retroactively applied to 2014 state tax returns, citing a potential loss of tax revenue. Now, with tax returns for 2015 nearing an April 18 deadline, the state is almost two years behind.
A state Senate staff report describes it as “a fine mess” that “has caused a significant degree of taxpayer hardship.”
The report is a Senate Governance and Finance Committee analysis of a bill by Sen. Cathleen Galgiani, D-Manteca, that would provide state tax relief for the 2014, 2015 and 2016 tax years.
The committee approved Senate Bill 907 on a 7-0 vote last week, three months after its introduction and after hearing from Hector Vasquez, a retired prison guard from Stockton, who described how he had been hit with an $11,034 state tax bill after a short sale of his home in 2014, including several thousand dollars in penalties.
Distressed homeowners such as Vasquez “cannot afford to pay taxes on income they never received,” Galgiani said.
The committee was just the bill’s first stop, which means that there’s little chance it could be enacted before April 18 – even if Brown changes his mind.
It’s odd that the governor, who professed such concern for those on lower economic rungs as he signed the bill increasing the minimum wage, would be so unwilling to give minimal relief to Vasquez and others in his predicament – relief that overwhelming, bipartisan majorities of legislators support.
It would cost the state treasury, at most, under $100 million a year, and probably a lot less. That’s pocket lint in the context of a $100 billion-plus state budget.
But the Legislature shares the blame. It could have overridden Brown’s veto and it could have moved a new bill quickly enough to prevent the kind of anxiety that tens of thousands of Californians are feeling as the tax filing deadline approaches.