The new chair of the Assembly Revenue and Taxation Committee, Assemblyman Anthony Portantino, made it clear during the panel's April 12 hearing that any proposal for a significant tax cut or tax incentive faces stiff odds in his committee.
During hearings for several bills, Mr. Portantino urged authors to amend their bills to include expiration dates on tax incentives (in legislative jargon, "sunset dates" on "tax expenditures") and to target tax incentives to small businesses, which he defined as those with "an income of $250,000 or less." (Cal-Tax: Both of these ideas will make incentives less effective. When deciding where to locate operations, or whether to hire employees, businesses use long-range planning. They need to be able to count on a tax incentive being in place for more than a few years, and if they reach the $249,999 level they should be encouraged to continue their success, rather than being forced to decide whether making the extra dollar will lead to much higher taxes.)
"The other thing that we're going to be looking at in the committee is trying to find things that pay as they go along," Mr. Portantino announced near the beginning of the hearing. "We're going to be asking all the authors that are proposing bills that cost money to try to find an identified revenue source in order to pay for them."
Assembly Republican Leader Martin Garrick, presenting a bill to exempt new corporations from the annual minimum franchise tax (AB 2126) in order to stimulate job creation, noted that the official analysis of his bill ignores the economic impact of the new jobs, and thus incorrectly characterizes the bill as a having a cost equal to the amount of taxes that no longer would be required.
Mr. Portantino acknowledged that the committee's analysis is not complete in this regard. "One of the things that I'm sort of frustrated with is we don't ever score savings or projections in our analysis," the chairman said.
As has become customary in recent years, the Democrat-controlled committee sent most Republican-authored bills to its "suspense file" without a vote. The suspense file measures are scheduled to be considered at the committee's May 10 hearing. (Cal-Tax: Historically, many bills have been held in the suspense file, and thus have been killed without a vote – although Republicans typically offer motions to remove the bills from the suspense file, and legislators do vote on these seldom-approved motions.) The bills sent to the suspense file include:
· Capital Gains Conformity. AB 1806 (Hagman), conforming to Internal Revenue Code Section 121(b)(4), relating to an exclusion from income for capital gains recognized by a surviving spouse upon the disposition of his or her principal residence. Gina Rodriquez of Spidell Publishing testified in support of the bill.
· Sales Tax Exemption for Manufacturing Equipment. AB 1812 (Silva), creating a partial sales and use tax exemption, operative January 1, 2011, for specified purchases of manufacturing equipment used in the manufacturing process. Ms. Sutton testified in support. Mr. Portantino requested amendments to put an expiration date on the exemption and to identify a "funding source" for the $1.1 billion in tax revenue that the Franchise Tax Board estimated the state would lose in 2011-12. (Cal-Tax: This estimate does not account for the economic stimulus and job creation that would be prompted by the bill. Also, under the committee's new guidelines, this type of economy-stimulating measure cannot be approved without an accompanying economy-depressing revenue increase of $1.1 billion.)
· Health Savings Accounts. AB 2041 (Villines), conforming to federal tax law by excluding contributions to health savings accounts from income, for taxable years beginning on or after January 1, 2010. Ms. Sutton, testifying in support, said the bill represents "important federal conformity ensuring that California taxpayers are not penalized for investing in health savings accounts." Labor unions opposed the bill, with one labor representative arguing that many low-income Californians do not have income tax liability, so they would not benefit from the measure.
· Deduction for Donated Medical Services. AB 2148 (Tran), allowing a personal income tax deduction for medical services contributed free of charge by a physician to a community clinic. Mr. Portantino asked that the bill be amended to include an expiration date on the deduction. Assemblyman Jim Beall called the bill a "very intriguing, good idea."
· Sales Tax Exemption for Manufacturing Equipment. AB 2280 (Miller), creating a complete sales and use tax exemption for all manufacturing equipment. Ms. Sutton said, "This is good tax policy that will provide much-needed relief from the high cost of doing business in California." During the hearing on this bill, Republican Assemblyman Brian Nestande asked witnesses about lowering the sales tax rate and extending the tax to services, and about lowering the state income tax rates.
Cal-TaxReports, April 19, 2010
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