Certain Capitol wags observe that tax breaks are to budgets what bugs are to Roach Motels.
Legislators approve tax breaks by simple majorities. But the law says they must muster two-thirds majorities to remove them. Like creepy crawlies, they find their way into the tax codes, never to come out. Hence, the state forgoes about $55 billion annually on so-called tax expenditures.
Some are worthwhile. But the left-leaning California Tax Reform Association led by veteran tax expert Lenny Goldberg has identified three bills that would cut taxes in unnecessary ways, and urged Gov. Jerry Brown to veto the bills. We heartily agree.
The Legislature approved each measure by overwhelming margins. None of the bills would break the bank. Each would cost the state a few million dollars annually, dust in a $170 billion budget.
But tax breaks conferred on some people tend to end up being offset by taxes on other people, or by reductions to programs for the needy, something Democrats who carried the bills likely would decry.
At the top of the to-veto list is Assembly Bill 437 by outgoing Assembly Speaker Toni Atkins, D-San Diego, which was approved 80-0 in the Assembly and 32-0 in the Senate.
Backed by a biotech industry trade group, Atkins seeks to authorize some small businesses to convert to cash grants tax credits already given by the state for research and development expenses.
In a letter urging a veto, Goldberg says the bill is so loosely written that the state could be in the position of writing checks to businesses, “irrespective of whether they will continue in operation, will hire any new workers, or even have a product which is worth investing in.”
Assemblyman Jimmy Gomez, a Los Angeles area Democrat, is carrying a second veto-worthy bill, AB 88. This measure would grant a sales tax break for energy- and water-saving refrigerators and washing machines. The Assembly approved it 80-0, and the Senate 35-5.
According to a Senate staff analysis, the bill’s sponsor, Appliance Recycling Centers of America, has provided 140,533 refrigerators and washers in the Los Angeles area, but now is embroiled in a dispute over sales taxes with the state over the appliances. Brown should veto the bill, and let the Board of Equalization and courts sort out the tax issue.
Assemblyman Adrin Nazarian, another Los Angeles Democrat, is carrying AB 428, to provide a 30 percent tax credit to help pay for seismic safety retrofits. The bill cleared the Assembly 77-0. Senators supported it 38-1.
The Senate analysis questions the bill’s point, saying, “it is unclear whether the tax incentive ultimately encourages new behavior or rewards behavior that was going to occur regardless.”
Although the Senate analysis didn’t use the Roach Motel analogy, it made the same point. “Once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a one-way ratchet whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy, without a supermajority vote.”
In other words, this tax break and others will slither into the tax codes, never to come out, unless, that is, Brown uses his veto authority to squish them like bugs.