In an analysis of the governor's tax proposals, Legislative Analyst Mac Taylor urges the Legislature to reject a proposed oil severance tax and expansion of the sales tax to selected services. He also believes the governor's 1.5 percent temporary sales tax increase is too high. The report also suggests that a proposed tax increase on beer and distilled spirits is too high, and says the proposed film tax credit should be rejected.
As alternatives, the analyst's February 5 report identified a number of options for raising revenues that would generate roughly $5.2 billion a year in 2009-10 and 2010-22. They are:
· Repeal the senior income tax credit of $198 available to taxpayers over 65.
· Eliminate the personal income tax exclusion for employers' contributions (up to $50,000) for life insurance policies provided to employees.
· Include as income for personal income tax purposes the value of free parking provided by employers to employees.
· Eliminate the exclusion for 50 percent of the gain from the sale of small business stock.
· Eliminate the capital gains exclusion for like-kind exchanges.
· Eliminate enterprise zone tax benefits by canceling zone areas authorized in 2006 and by letting other zones expire when their authorized time periods are up.
· Eliminate the sales tax exemption for animal life, feed, seeds and fertilizer.
· Eliminate the sales tax on equipment used in timber harvesting, farming and post-production movie and television development.
· Treat health care professionals as retailers, rather than as consumers, when they sell taxable personal property.
· Eliminate the sales tax exemption for custom computer programs.
· Eliminate the diesel fuel sales tax exemption for fuel used in farming activities.
· Eliminate the sales tax exemption for diesel fuel.
· Eliminate the sales tax exemption for all leases on motion picture and television films and tapes.
· Increase the car tax (Vehicle License Fee) from 0.65 percent to 1 percent.
· Impose a temporary 5 percent personal income tax surcharge.
On the oil severance tax, the analyst said the Schwarzenegger administration has not demonstrated that the tax burden on the oil industry is low. According to the report: "While California has no severance tax, it is also one of a few states that taxes oil reserves as property. The proposed 9.9 percent rate would give California the second highest severance in the nation."
With respect to the governor's proposal to reduce the income tax credit to dependents to the level of personal credits, the analyst says there is little justification for the higher dependent credit (which is $309 for 2008, compared with the $99 personal credit).
On alcoholic beverage taxes, the analyst suggests increases in per-gallon taxes as follows:
|
|
Current |
Analyst Proposed |
Governor Proposed |
|
Beer |
$0.20 |
$0.61 |
$0.73 |
|
Wine |
$0.20 |
$1.48 |
$1.48 |
|
Distilled Spirits |
$3.30 |
$4.92 |
$7.57 |
The analyst states that his proposed schedule would result in a uniform tax of 0.57 percent per drink for each product, while the governor's proposal would result in different prices per drink for these products.
On the governor's proposal to tax selective services, the analyst says that potential new distortions would be created, and that the impact on the economy is unknown.
Cal-Taxletter, February 13, 2009
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