ALMOST RIGHT. CALIFORNIA'S A TAX
EXPENDITURE PROGRAMS. I WANT TO
REMIND ANY EVERYBODY THAT FOR
THIS HEARING TESTIMONY AND
PUBLIC COMMENT MUST BE IN PERSON
. WE ARE NO LONGER USING A
MODERATED TELEPHONE SERVICE
BEFORE WE START. I WOULD LIKE TO
THANK THE MEMBERS AND PANELISTS
, THE MEMBER AND PANEL MEMBERS
AND PANELISTS IN ATTENDANCE
TODAY AS WE EXAMINE CALIFORNIA'S
TAX EXPENDITURES ALONG WITH
THEIR FEATURES. ADMINISTRATION
AND OCCASIONAL COMPLICATIONS
THIS HEARING AND THEN I WOULD
ALSO LIKE TO WELCOME OUR NEWEST
CONSULTANT WESLEY WHITTAKER, TO
THE COMMITTEE. I KNOW YOU'RE
GOING TO DO A GOOD JOB. THIS
HEARING WILL BE AN OPPORTUNITY
FOR NEW MEMBERS ON THE COMMITTEE
TO DEVELOP A CONCEPTUAL
FRAMEWORK. FOR REVIEWING TAX
EXPENDITURES AS SUCH PROPOSALS
COMPROMISE A SIGNIFICANT
MAJORITY OF THE BILLS THAT THIS
COMMITTEE CONSIDERS TAX
EXPENDITURES MAY BE DEFINED IN A
NUMBER OF WAYS. THIS COMMITTEE
GENERALLY CONSIDERED TAX
EXPENDITURES TO BE ANY TAX
CREDIT DEDUCTION, EXCLUSION OR
EXEMPTION. THESE FEATURES OF THE
TAX LAW ARE GENERALLY DESIGNED
TO ENCOURAGE CERTAIN TAXPAYER
BEHAVIOR. AS WE WILL HEAR IN
GREATER DEPTH MOMENTARILY. TAX
EXPENDITURES REQUIRE A MAJORITY
VOTE TO ENACT BUT TWO THIRDS
VOTE TO REPEAL. ADDITIONALLY
ACCORDING TO SOME ESTIMATES, THE
TOTAL COST OF TAX EXPENDITURES
TO THE STATE IS OVER $69 BILLION
IN THIS YEAR ALONE. GIVEN THESE
FACTS. THIS COMMITTEE REVIEWS
TAX EXPENDITURES WITH CAREFUL
SCRUTINY REQUIRING AN
APPROPRIATE SUNSET PROVISIONS
AND FULL COMPLIANCE WITH REVENUE
AND TAX CODE SECTION 41 FOR A
TAX EXPENDITURE MEASURE TO BE
ELIGIBLE FOR A VOTE. TODAY WE
WILL FURTHER EXAMINE THE FACTORS
INFORMING THIS TREATMENT THIS
YEAR. CALIFORNIA FACES A
POTENTIAL BUDGET SHORTFALL OF
OVER $20 BILLION IN THIS
COMMITTEE HOPES. THAT THIS
HEARING WILL SHED LIGHT ON THE
EXPENDITURES THAT ARE NOT
TYPICALLY CONSIDERED IN A BUDGET
HEARING. WITH THAT SAID, WOULD
ANY OF THE OTHER MEMBERS THAT
ARE SITTING ON THE DIETS RIGHT
NOW LIKE TO PROVIDE ANY
COMMENTS? ALL RIGHT. THANK YOU.
AND AS A REMINDER TO MEMBERS,
PETE, PLEASE WAIT FOR YOUR
QUESTIONS UNTIL THE END OF EACH
OF THE PANELS. PANELISTS AFTER
YOU'VE FINISHED YOUR
PRESENTATIONS, PLEASE REMAIN
SEATED SO THAT THE MEMBERS MAY
ASK QUESTIONS. WE WILL NOW MOVE
ON TO OUR FIRST. UH WITNESSES IN
THIS PANEL OF COLBY WHITE. OUR
FIRST WITNESS. SHOULD WE SEE THE
WHOLE PANEL? THANK YOU. WHY
DON'T WE HAVE GO AHEAD AND HAVE
THE WHOLE PANEL COME UP, AND
THAT WOULD BE, UM COLBY WHITE,
UH, DENNIS ARMSTRONG. SUSAN
MAPLES. UH, MICHELLE LINTON. AND
BRADLEY MILLER. IS THIS SONG
ALREADY? AND. ALRIGHT UH, KOBE
WHITE, WHO WILL BE SPEAKING AS
THE PRINCIPAL PROGRAM BUDGET
ANALYSTS WITH THE DEPARTMENT OF
FINANCE. WE HAVE ASKED THE
DEPARTMENT TO PROVIDE A BRIEF
PICTURE OF STATES BUDGETARY
SITUATION THIS YEAR. AND A
GENERAL OVERVIEW OF TAX
EXPENDITURES AND THIS RIGHT, YOU
MAY BEGIN. GOOD MORNING, MADAM
CHAIR AND MEMBERS OF THE
LEGISLATURE, KOBE WHITE
DEPARTMENT OF FINANCE AND THANK
YOU FOR THE OPPORTUNITY TO BE
HERE TODAY, I WILL BE PROVIDING
A BRIEF RECAP OF THE STATE'S
CURRENT BUDGETARY CONDITION. AND
THEN I WILL TALK GIVEN OVERVIEW
OF THE STATE'S TAX EXPENDITURES
HOW THEY ARE DEFINED. HOW THEY
ARE REPORTED AND EVALUATED BY
THE STATE AND INCLUDING BUT NOT
LIMITED TO THE DEPARTMENT OF
FINANCE IS TAX EXPENDITURE
REPORT. AND UM AND HOW THEY
COMPARE TO DIRECT EXPENDITURES.
UM SO 1ST 1ST SLIDE, PLEASE. SO
WHILE THE REVENUE OUTLOOK IS
SUBSTANTIALLY DIFFERENT THAN THE
PREVIOUS TWO YEARS AND HAS BEEN
REVISED SIGNIFICANTLY DOWNWARD,
THE STATE DOES REMAIN IN A
RELATIVELY SOLID FISCAL
CONDITION DUE TO PRUDENT PRIOR
ACTIONS THAT BUILT RESILIENCY
INTO THE BUDGET, INCLUDING A
FOCUS ON PAYING DOWN DEBT,
COMMITTING NEW SPENDING TO ONE
TIME PURPOSES RATHER THAN
ONGOING. AND BUILDING HEALTHY
RESERVES, EXCLUDING TRANSFERS TO
THE BUDGET STABILIZATION ACCOUNT
AND SOLUTIONS THAT MOST RECENT
FORECAST THE 23 24 GOVERNORS
BUDGET, UH WAS 20 WAS $29.5
BILLION LOWER THAN THE BUDGET
ACT FORECAST AND AN ESTIMATE AN
ESTIMATED BUDGET GAP IN IN
FISCAL YEAR. 23 24 OF $22.5
BILLION THIS BUDGET GAP IS
PROPOSED TO BE ADDRESSED THROUGH
A COMBINATION OF FUNDING DELAYS
AND SHIFTS, VARIOUS REDUCTIONS
AND LIMITED BORROWING AND
REVENUE SOLUTIONS. HOWEVER DUE
TO BUDGET RESILIENCY RESERVES OF
3 $35.6 BILLION ARE MAINTAINED
AND DRASTIC SPENDING CUTS HAVE
BEEN AVOIDED. AND MORE RECENTLY
, CASH RESULTS SINCE THE
GOVERNOR'S BUDGET DO INDICATE
ONGOING WEAKNESS. RESULTS
THROUGH JANUARY ARE $3.3 BILLION
BELOW PROJECTIONS, AND THIS
SHORTFALL IS PRINCIPALLY DUE TO
WEAKNESS AND PERSONAL INCOME TAX
REVENUES AS WELL AS CORPORATE
TAX REVENUES, EXCLUDING THE
IMPACT OF THE PASTOR, ENTITY TAX
SO WE WILL, UH AND WE WILL BE
UPDATING OUR PROJECTIONS, OF
COURSE FOR THE MAY REVISION.
NEXT SLIDE. UH SO WHEN TALKING
ABOUT TAX EXPENDITURES, AS NOTED
IN THE CHAIRS, INTRODUCTORY
COMMENTS, IT IS IMPORTANT TO
FIRST DEFINE WHAT A TAX
EXPENDITURE IS AND WHAT IT IS
NOT. AND HERE IN THIS SLIDE, UM
I HAVE LISTED THE DEFINITION
THAT IS IN THE STATES GOVERNMENT
CODE, WHICH UNDERPINS THE
DEPARTMENT OF FINANCE IS TAX
EXPENDITURE REPORT AND IT
DEFINES A TAX EXPENDITURE AS A
CREDIT EXCLUSION DEDUCTION
EXEMPTION. OR ANY OTHER BENEFIT
PROVIDED BY THE STATE. WHILE
THIS DEFINITION IS BROAD FINANCE
HAS INTERPRETED IT TO MEAN
ASPECTS OF THE LAW THAT ARE
BASIC TO THE TAX STRUCTURE ARE
NOT TAX EXPENDITURES, AND I WILL
TOUCH A BIT MORE ON THAT LATER.
BUT IT IS IMPORTANT TO NOTE THAT
THERE CAN BE JUDGMENT IN
DETERMINING WHAT IS BASIC TO THE
TAX STRUCTURE, AND THEREFORE
DIFFERENT AGENCIES CAN DEFINE
WHAT DOES THE TAX EXPENDITURE
DIFFERENTLY. NEXT SLIDE. UH
CURRENTLY THERE ARE THREE STATE
AGENCIES THAT REGULARLY PUT OUT
A TAX EXPENDITURE REPORT. FIRST
THERE IS THE DEPARTMENT OF
FINANCE, WHICH IS STATUTORILY
REQUIRED TO PUBLISH AN ANNUAL
REPORT. SECOND THE FRANCHISE TAX
BOARD AS PART OF PART OF ITS
BEST PRACTICES ANNUALLY PRODUCES
AN ANNUAL TAX EXPENDITURE REPORT
THAT COVERS THE PERSONAL INCOME
TAX AND CORPORATE INCOME TAX
REVENUES. AND LASTLY, THE
CALIFORNIA DEPARTMENT OF TAX AND
FEE ADMINISTRATION PRODUCES WHAT
IS CALLED PUBLICATIONS 61 THAT
REPORTS ON TAX EXPENDITURES
UNDER SALES TAX LAW, THE
LEGISLATIVE ANALYST'S OFFICE AND
THE BUREAU OF STATE AUDITS ALSO
PERIODICALLY HAVE REPORTED ON
VARIOUS TAX EXPENDITURES. NEXT
SLIDE. SO REGARDING THE
DEPARTMENT OF FINANCE IS TAX
EXPENDITURE REPORT. I'LL GO IN A
BIT MORE DETAIL. WE UH, WE
PROVIDE, UH EACH YEAR A
COMPREHENSIVE PRINCIPLE LIST OF
TAX EXPENDITURES IN THE AREAS OF
PROPERTY TAX SALES, TAX,
CORPORATE INCOME TAX AND
PERSONAL INCOME TAX THAT EXCEED
HAVE A FISCAL COST IN EXCESS OF
$5 MILLION PER YEAR. THE REPORT
INCLUDES INCLUDES THE FOLLOWING
ITS INCLUDES THE STATUTORY FOR
EACH TAX EXPENDITURE INCLUDES
STATUTORY AUTHORITY DESCRIPTION
OF LEGISLATIVE INTENT WHEN
AVAILABLE. THE SUNSET DATE, UH,
INTENDED BENEFICIARIES AND
ESTIMATE OF THE STATE AND LOCAL
REVENUE LOSS FOR THE CURRENT AND
TO SUBSEQUENT FISCAL YEARS. NEXT
SLIDE, PLEASE. IT ALSO INCLUDES
THE NUMBER OF TAX RETURNS
TAXPAYERS TAX RETURNS OR
BUSINESSES, CLAIMING THE BENEFIT
A LISTING OF ANY COMPARABLE
FEDERAL BENEFIT AND, LASTLY, A
LISTING OF OTHER TAX
EXPENDITURES OR REPORTS OR
EVALUATIONS COMPLETED BY ANY
STATE AGENCY IN THE LAST YEAR.
OUR REPORT, WHILE LISTING
LEGISLATIVE INTENT IS GENERALLY
A DESCRIPTIVE DOCUMENT. IT DOES
NOT EVALUATE THE EFFECTIVENESS
OF TAX EXPENDITURES. NEXT SLIDE.
UM I MENTIONED EARLIER THAT
JUDGMENT WAS REQUIRED TO
DETERMINE WHAT IS PART OF THE
BASIC TAX STRUCTURE AND
THEREFORE WHAT WOULD DEVIATE
FROM BASIC TAX STRUCTURE AND
THEREFORE TO BE DETERMINED TO BE
A TAX EXPENDITURE. HERE ON THIS
SLIDE ARE SOME EXAMPLES OF ITEMS
THAT FINANCE DOES NOT CONSIDER
TAX EXPENDITURES BECAUSE THEY
WERE JUDGED TO BE PART OF THE
STATE'S BASIC TAX STRUCTURE.
THESE EXAMPLES INCLUDE SALES TAX
NOT NOT APPLIED TO LEASES OF
SELL REAL PROPERTY. UH SALES OF
SERVICES, WHOLESALE TRANSACTIONS
OR SALES OF SECURITIES NET
OPERATING LOSS DEDUCTIONS. UM
CALIFORNIA'S PROGRESSIVE INCOME
TAX STRUCTURE ITSELF EXEMPTIONS
REQUIRED BY THE CONSTITUTION.
AND CHANGES TO PENALTIES OR
INTEREST OR THE TIMINGS OF
PAYMENTS AND, LASTLY,
APPORTIONMENT RULES. OBVIOUSLY
THIS IS NOT A COMPREHENSIVE
LIST, BUT THIS IS JUST TO GIVE
AN EXAMPLE WHERE OF CERTAIN
THINGS THAT ARE NOT CONSIDERED
TAX EXPENDITURES. NEXT SLIDE,
PLEASE. AND AH, HERE ON THIS
SLIDE, I HAVE LISTED SOME OF THE
MORE WELL KNOWN TAX EXPENDITURES
INCLUDED IN OUR REPORT, AND
THESE INCLUDE THE RESEARCH AND
DEVELOPMENT TAX CREDIT, WHICH IS
INTENDED TO INCENTIVIZE RESEARCH
AND DEVELOPMENT ACTIVITY WITHIN
THE STATE EMPLOYER PROVIDED
HEALTH INSURANCE, WHICH IS AN
EXCLUSION FOR FROM TAXATION FOR
HEALTH INSURANCE PROVIDED BY
EMPLOYERS. EXCLUSION OF CAPITAL
GAINS ON THE SALE OF PRINCIPAL
RESIDENCES AND THE MORTGAGE
INTEREST. MORTGAGE INTEREST
DEDUCTION. UM WHILE THIS IS NOT
ALWAYS THE CASE, EACH OF THESE
LISTED TAX EXPENDITURES ALSO HAS
A COMPARABLE FEDERAL BENEFIT IN
FEDERAL LAW, TO WHICH THE STATE
EITHER FULLY OR PARTIALLY
CONFORMS TO NEXT SLIDE. UM. AS
NOTED IN AN INTRODUCTORY
COMMENTS. THE TAX EXPENDITURES
CAN GENERALLY BE DIVIDED INTO
VERY TWO VERY BROAD CATEGORIES.
THOSE THAT ARE INTENDED TO
PROVIDE AN INCENTIVE FOR A
PARTICULAR TYPE OF BEHAVIOR AND
THOSE THAT PROVIDE RELIEF FOR
TAXPAYERS THAT MAY BE FACING A
PARTICULAR ECONOMIC HARDSHIP. AN
EXAMPLE OF THE FORMER IS THE
AFOREMENTIONED RESEARCH AND
DEVELOPMENT TAX CREDIT, WHICH IS
INTENDED TO ENCOURAGE WE R AND D
IN THE STATE AND THEN ALSO AN
EXAMPLE OF, UH, A TAX
EXPENDITURE PROVIDING RELIEF IS
THE STATE'S EARNED INCOME TAX
CREDIT, WHICH PROVIDES A
REFUNDABLE TAX CREDIT TO
TAXPAYERS THAT ARE BELOW CERTAIN
ADJUSTED GROSS INCOME
THRESHOLDS. NEXT LINE. SO
EVALUATING THE EFFECTIVENESS OF
TAX EXPENDITURES, AND I THINK
OTHERS WILL HAVE MORE TO SAY ON
THIS IN FOLLOWING PRESENTATIONS
, BUT I'LL JUST HIGHLIGHT SOME
OF THE DIFFICULTIES UH,
PARTICULARLY THOSE THAT ARE
INTENDED TO INCENTIVIZE A
PARTICULAR BEHAVIOR. THEY CAN BE
THOSE THOSE EVALUATIONS CAN BE
DIFFICULT DUE TO LIMITED DATA
AVAILABILITY, INDIRECT EFFECTS
AND THE DIFFICULTY IN ESTIMATING
OPPORTUNITY COSTS. TAX
EXPENDITURES TO SOME EXTENT, UH,
THAT ARE INTENDED INCENTIVIZED
BEHAVIOR WELL RESULT IN WINDFALL
BENEFITS, WHICH ARE DEFINED AS
BENEFITS TO BUSINESSES OR
INDIVIDUALS THAT WOULD HAVE
UNDERTAKEN THE ACTIVITY EVEN IN
THE ABSENCE OF THE TAX
EXPENDITURE. THE EXTENT OF
WINDFALL BENEFITS IS A KEY
FACTOR IN DETERMINING TAX
EXPENDITURES COST RELATIVE TO
ITS BENEFIT. ALTHOUGH IT IS NOT
OFTEN CLEAR WHAT WOULD HAVE
HAPPENED IN THE ABSENCE OF THE
TAX CREDIT. NEXT SLIDE. UH IN
THE INTEREST OF INCREASING
TRANSPARENCY AND EVALUATION OF
NEW TAX EXPENDITURES, REVENUE
AND TAXATION CODE SECTION 41 WAS
PASSED AND REQUIRES ALL NEW TAX
EXPENDITURES CREATED AFTER
JANUARY. 1 2015. TO INCLUDE
SPECIFIC GOALS, PURPOSES,
OBJECTIVES, PERFORMANCE MEASURES
AND DATA COLLECTION REQUIREMENTS
TO ALLOW THE LEGISLATURE TO
EVALUATE THE EFFECTIVENESS OF
THE TAX EXPENDITURE. AH BECAUSE
OF SECTION 41. THERE IS NOW
CONSISTENT REPORTING BY THE
FRANCHISE TAX BOARD, THE LA AND
OTHER AGENCIES ON VARIOUS ON
VARIOUS TAX EXPENDITURES. NEXT
SLIDE, PLEASE. SO NOW I'M GONNA
TALK BRIEFLY A BIT ABOUT THE
DIFFERENCES BETWEEN TAX
EXPENDITURES AND DIRECT
EXPENDITURES. THEY CAN BOTH BOTH
TYPES OF EXPENDITURES CAN BE
USED TO ACCOMPLISH SIMILAR
POLICY OBJECTIVES. BUT THEY HAVE
SOME DISTINCT CHARACTERISTICS.
AND THERE ARE TRADEOFFS TO
EITHER APPROACH. UM SOME
DIFFERENCES TO KEEP IN MIND IS,
UH, TAX EXPENDITURES CAN BE
REVIEWED LESS FREQUENTLY. UM
THIS HAS CHANGED SOMEWHAT
RECENTLY WITH NEWER TAX
EXPENDITURES SUBJECT TO SECTION
41 REPORTING REQUIREMENTS. UM AS
WELL AS THE PRACTICE FOR, UM,
WHICH HAS BEEN IN PLACE I THINK
FOR OVER A DECADE OR SO A NEW
TAX EXPENDITURES COMING OUT OF
COMMITTEES HAVE HAVE BEEN
REQUIRED TO HAVE SUNSET DATES.
AND TAX EXPENDITURES, UNLIKE
DIRECT EXPENDITURES MAY NOT HAVE
CONTROL OVER THE FOREGONE
REVENUE ONCE THEY ARE IN PLACE.
UM BUT THERE ARE EXCEPTIONS, AND
THESE WOULD INCLUDE ANY TAX
EXPENDITURES THAT HAVE A
RESERVATION SYSTEM OR, FOR
EXAMPLE, CAPPED AND ALLOCATED
TAX CREDITS, SUCH AS THE FILM
TAX CREDIT AND THE CAL COMPETES
TAX CREDIT, WHICH WHICH DO HAVE
CLEAR CONTROL OVER THE FOREGONE
REVENUE AND TAX EXPENDITURES ARE
ACCOUNTED DIFFERENTLY. UH FOR
THEN DIRECT EXPENDITURES. 11 IS
A REVENUE REDUCTION THE TAX
EXPENDITURE WHILE THE YOU KNOW
DIRECT EXPENDITURE OBVIOUSLY IS
SIMPLY AN EXPENDITURE INCREASE,
AND THAT'S HOW IT'S REFLECTED IN
THE STATE'S FINANCIAL
STATEMENTS. NEXT SLIDE, PLEASE.
AND THEN, LASTLY, THE VOTE
REQUIREMENTS FOR TAX
EXPENDITURES AND DIRECT
EXPENDITURES CAN BE DIFFERENT,
WHILE BOTH TYPES OF EXPENDITURES
MAY BE ENACTED LEGISLATIVELY
WITH A SIMPLE MAJORITY VOTE, THE
REPEAL OF A TAX EXPENDITURE
REQUIRES A TWO THIRDS MAJORITY
WHILE THE DIRECT EXPENDITURE CAN
BE REPEALED WITH A SIMPLE
MAJORITY VOTE. NEXT SLIDE. SO ON
MY LAST SLIDE HERE, I DID WANT
TO HIGHLIGHT THAT REVENUE
ESTIMATES RELATED TO TAX
EXPENDITURES CAN BE DIFFICULT
FOR A VARIETY OF REASONS,
INCLUDING LACK OF DATA,
PARTICULARLY WITH REGARD TO, FOR
EXAMPLE, SALES TAX EXEMPTIONS
WHERE WHERE ESTIMATES MAY BE
BASED ON INDUSTRY DATA RATHER
THAN TAX DATA. BECAUSE THERE
THERE ARE, THERE ARE EXEMPTIONS
AND AREN'T NECESSARILY REPORTED
ON A TAX FORM. UM ALSO REVENUE
ESTIMATES FOR TAX EXPENDITURES.
UH IN OUR REPORT IS DONE IN
ISOLATION. IT DOES NOT ACCOUNT
FOR BEHAVIORAL CHANGES THAT MAY
SHIFT REVENUE LOST TO ALTERNATE
TAX EXPENDITURE. SO ONE EXAMPLE
HERE WOULD BE IF YOU ELIMINATED
THE EXCLUSION OF INCOME EARNED
IN SCHOLARSHIP FOR 5 TO 9 PLANS
. UH YOU COULD YOU WOULD JUST
YOU MIGHT JUST SHIFT THOSE
SAVINGS INTO THE COVERDALE
EDUCATION SAVINGS ACCOUNT WITH
SIMILAR TAX BENEFITS, SO
THEREFORE, WE CAUTION WHEN USING
REPORTS SUCH AS THE DEPARTMENT
OF FINANCE IS TAX EXPENDITURE
REPORT. IT IS IMPORTANT TO
RECOGNIZE THAT REPEALING A
PARTICULAR TAX EXPENDITURE MAY
NOT YIELD THE REVENUE
HIGHLIGHTED IN THE REPORT AND
MAY SIMPLY RESULT IN OTHER TAX
EXPENDITURES BEING USED MORE
WITH NEXT SLIDE. SO WITH THAT,
THAT CONCLUDES MY PREPARED
REMARKS AND AGAIN THANK YOU FOR
THE OPPORTUNITY TO BE HERE.
THANK YOU, MR WHITE. WE WILL NOW
HEAR FROM OUR NEXT PANELISTS
REPRESENTING THE NEXT PANELISTS
REPRESENTING THE FRANCHISE TAX
BOARD. DENNIS ARMSTRONG IS THE
DIRECTOR OF LEGISLATIVE SERVICES
BUREAU AND SUSAN MAPLES IS THE
DIRECTOR OF THE ECONOMIC AND
STATISTICAL RESEARCH BUREAU.
WELCOME GOOD MORNING. MY NAME IS
SUSAN MAPLES ALWAYS SPEAKING
FIRST, AND I AM AS YOU, SAID THE
DIRECTOR OF THE ECONOMIC AND
STATISTICAL RESEARCH BUREAU.
THANK YOU SO MUCH FOR HAVING US
HERE TODAY. TODAY I'D LIKE TO
TAKE IT JUST A COUPLE OF MINUTES
TO COVER THE DIFFERENT TYPES OF
TAX EXPENDITURES AND HOW
FRANCHISE TAX BOARD GATHERS
INFORMATION ABOUT THOSE TAX
EXPENDITURES FROM THE TAX
RETURNS THAT ARE FILED. AND THE
RESULTING REPORTING OF THAT
INFORMATION. THE FIRST THING TO
UNDERSTAND ABOUT TAX
EXPENDITURES IS WHY WE CALL THEM
TAX EXPENDITURES. THE TAX AND
TAX EXPENDITURES COMES FROM THE
FACT THAT THEY PROVIDE BENEFITS
THROUGH THE TAX CODE. THE
EXPENDITURES AND TAX
EXPENDITURES, CANCER AND THE
FACT THAT CONCEPTUALLY THE SAME
BENEFITS COULD BE PROVIDED VIA
TRADITIONAL GOVERNMENT
EXPENDITURE PROGRAM. FOR
EXAMPLE, THE R AND D CREDIT
COULD BE REPLACED WITH A GRANT
FOR PROGRAM AT GRANT PROGRAM FOR
COMPANIES UNDERTAKING RESEARCH.
OR THE MORTGAGE INTEREST
DEDUCTION COULD BE ELIMINATED
AND THE GOVERNMENT COULD SEND
HOMEOWNERS A CHECK EQUAL TO THE
PERCENTAGE OF THEIR MORTGAGE
INTEREST. SO WITH THAT, I'D LIKE
TO KIND OF JUST COVER THE THREE
DIFFERENT TYPES OF TAX
EXPENDITURES THAT WE HAVE. FIRST
WE HAVE EXCEPTIONS AND
EXCLUSIONS. THESE ARE MONIES
THAT ARE RECEIVED BUT NOT
INCLUDED IN THE CALCULATION OF
TAXABLE INCOME. EXAMPLES INCLUDE
EMPLOYER BENEFITS, UH,
CONTRIBUTIONS TO HEALTH
INSURANCE, SOCIAL SECURITY,
INCOME AND LOTTERY WINNINGS,
SINCE THEY ARE NOT INCLUDED IN
INCOME. THE RECIPIENTS TAX
TAXABLE INCOME AND THEREFORE
THEIR ATTACKS. IS LOWER THAN IF
THESE ITEMS WERE INCLUDED
INCOME. THESE ARE ALSO THE MOST
DIFFICULT AND HARDEST FOR FTP TO
TRACKED, SINCE THERE IS NO
INFORMATION ABOUT THEM THAT
APPEARS ON THE TAX RETURN. NEXT
WE HAVE DEDUCTIONS. THESE ARE
THE AMOUNTS THAT CAN BE
SUBTRACTED FROM INCOME. EXAMPLES
INCLUDE QUALIFIED MORTGAGE
INTEREST, CHARITABLE
CONTRIBUTIONS AND IRA
CONTRIBUTIONS. DEDUCTIONS ALLOW
TAXPAYERS TO REDUCE THEIR
TAXABLE INCOME, AND THUS THE TAX
PAID. FINALLY WE HAVE CREDITS.
CREDITS ARE DIRECT REDUCTIONS IN
THE AMOUNT OF TAX DUE EXAMPLES
INCLUDE THE RENTER'S CREDIT AND
THE EARNED INCOME TAX CREDIT.
TAX CREDITS CAN ALSO BE
REFUNDABLE AND NON REFUNDABLE.
SO, FOR EXAMPLE, IF A TAXPAYER
OWES $10 IN TAX LIABILITY, BUT
IS ALSO ELIGIBLE FOR $60
RENTER'S CREDIT. THE TAXPAYER
CAN REDUCE THE TAX LIABILITY BY
THE $10 TO 0, BUT BECAUSE THAT
CREDIT IS NON REFUNDABLE, THE
TAXPAYER IS LIMITED TO THE $10
CREDIT AND LOSES OUT ON THE
REMAINING $50 IN CREDIT. SOME
REFUNDABLE CREDITS, HOWEVER,
HAVE A CARRY OVER PROVISION THAT
WOULD ALLOW FOR THESE UNUSED
CREDITS TO BE CARRIED OVER TO
FUTURE YEARS AND POTENTIALLY
AGAINST FUTURE LIABILITIES.
HOWEVER IF THIS WERE A $60
EARNED INCOME TAX CREDIT, WHICH
IS A REFUNDABLE CREDIT, THE
TAXPAYER COULD AGAIN USE $10 OF
THE CREDIT TO REDUCE THE
LIABILITY TO ZERO. BUT IN THIS
CASE SINCE IT'S REFUNDABLE, THE
ADDITIONAL $50 WOULD BE REFUNDED
AT THE TAXPAYER IN THE FORM OF A
CHECK OR DIRECT DEPOSIT. SO WITH
THAT I WANTED TO SPEND A LITTLE
BIT OF TIME TALKING ABOUT THE
REPORTING REQUIREMENTS THAT F T
B DOES AND HAS DB HAS REPORT
BEEN REPORTING ANNUALLY ON TAX
EXPENDITURES WE ADMINISTER SINCE
AROUND 2003, EVEN THOUGH WE ARE
NOT STATUTORILY REQUIRED TO DO
SO. A COPY OF THE MOST RECENT
TAX EXPENDITURE REPORT WAS
PROVIDED TO THIS COMMITTEE. THE
FIRST SECTION OF THE REPORT
REALLY DEFINES TAX EXPENDITURES
AND REVIEWS THE MAJOR
JUSTIFICATIONS AND CONCERNS WITH
THEM. THE MOST COMMON
JUSTIFICATIONS ARE TO PROVIDE
RELAXED RELIEF FOR TAXPAYERS WHO
ARE SUFFERING HARDSHIP. TO
INCENTIVIZE BEHAVIORAL CHANGES
AND TO PROMOTE ADMINISTER
ABILITY, THE MOST COMMON
CONCERNS OR THAT THEY MAY NOT
NECESSITATE AN INCREASE IN TAX
OR, ALTERNATIVELY, CUTS IN
GOVERNMENT SPENDING. THEY CAN
COMPLICATE THE TAX CODE, AND
THEY CAN ALSO REDUCE POLICY
FLEXIBILITY. THE SECOND SECTION
OF OUR REPORT DISCUSSES
INDIVIDUAL CALIFORNIA INCOME TAX
EXPENDITURES, INCLUDING THOUGHTS
ON THE INTENT OF EACH PROVISION,
THE COST OF THE EXPENDITURE AND
WHERE THE DATA IS AVAILABLE. THE
DISTRIBUTION OF THE BENEFITS
FROM THAT EXPENDITURE. FTP ALSO
PRODUCES REPORTS ON TAX
EXPENDITURES AS REQUIRED UNDER
SECTION 41. SECTION 41 IS THE
PROVISION REQUIRING THAT WHEN
THE CALIFORNIA WHEN CALIFORNIA
ADOPTS A NEW TAX EXPENDITURE,
THE ENACTING LEGISLATION WILL
INCLUDE A PURPOSE FOR THE NEW
PROVISIONS AND INSTRUCTIONS FOR
PRODUCING A REPORT EVALUATING IT
. IN SOME CASES, HOWEVER, THE
NEEDED DATA TO PROPERLY EVALUATE
THE EXPENDITURE IS NOT AVAILABLE
, PARTICULARLY IN THE CASE OF
EXCLUSIONS AND EXEMPTIONS WERE
NO DATA IS REQUIRED ON THE TAX
RETURN IN ORDER FOR TAXPAYERS TO
CALCULATE AND PAY THE CORRECT
AMOUNT OF TAX. IN OTHER CASES,
HOWEVER, IT CAN STILL BE
DIFFICULT TO CAPTURE THIS DATA.
SO I'D LIKE TO GIVE YOU AN
EXAMPLE. UM PERFECT EXAMPLE OF
THIS HAPPENED WHEN A B 37 WAS
PASSED, WHICH ALLOWED CERTAIN
CANNABIS BUSINESSES TO DEDUCT
ORDINARY AND NECESSARY EXPENSES
SUCH AS WAGES, RENTS AND THE
LIKE. SECTION 41 REQUIREMENTS OF
THIS BILL PROVIDED THAT FTP
COLLECT DATA AND REPORT ON THE
NUMBER OF DEDUCTIONS AND CREDITS
CLAIMED, AS WELL AS THE TOTAL
DOLLAR AMOUNT OF DEDUCTIONS AND
CREDITS CLAIMED AS A RESULT OF
THIS LAW CHANGE. HOWEVER IN
ORDER FOR FTV TO PROVIDE THIS
INFORMATION WE WOULD NEED TO BE
WE WOULD NEED A RELIABLE METHOD
TO IDENTIFY THE TAX RETURNS
WHERE THE DATA IS REPORTED, AND
ALSO TO BE ABLE TO CAPTURE THE
CORRECT DATA FROM THE TAX
RETURNS. BOTH OF THESE ITEMS
PRESENTED A PROBLEM TO IDENTIFY
RETURN IN A PARTICULAR INDUSTRY.
WE USUALLY USE ITS PRINCIPAL
BUSINESS ACTIVITY CODE. HOWEVER
IN THIS CASE, THERE ISN'T A
PRINCIPAL BUSINESS ACTIVITY CODE
FOR CANNABIS. IN ADDITION, WE
WOULD NEED TO BE ABLE TO
IDENTIFY ALL TAXPAYERS WHO
RECEIVE FLOW THROUGH INCOME FROM
THOSE CANNABIS BUSINESSES
BECAUSE THE DATA IS REQUIRED TO
BE REPORTED ON THE AMOUNTS
CLAIMED ON RETURNS. THE SECOND
PIECE BEING ABLE TO CAPTURE THE
CORRECT DATA OFF THE RETURN ALSO
PRESENTS A UNIQUE SET OF
CHALLENGES, AS UNFORTUNATELY NOT
ALL DETAILS AND AMOUNTS ABOUT
THESE EXPENDITURES ARE EASILY
IDENTIFIABLE. IN FACT, THE DATA
NEEDED FOR THE REPORT COULD
APPEAR IN SEVERAL DIFFERENT
SCHEDULES ON BOTH THE STATE AND
FEDERAL TAX RETURNS. IN ESSENCE
, THE DATA CANNOT BE
SPECIFICALLY IDENTIFIED ON THE
CALIFORNIA TAX RETURNS, AND IT'S
NOT AS EASY TO REPORT ON AS IF
SAY IT WERE CREDIT THAT HAD ITS
OWN FORM AND LINE AT HIM ON THE
RETURN THAT WE COULD JUST EASILY
CAPTURED DURING PROCESSING AND,
UM, THAT WE COULD ACTUALLY KEY
AND DURING PROCESSING OF THE OF
THE TAX RETURN. AS A RESULT, FTV
CREATED A NEW FORM FORM 41 97.
TO HAVE TAXPAYERS SELF IDENTIFY
AND REPORT THESE BENEFITS THAT
THEY RECEIVE FROM THESE TYPES OF
TAX EXPENDITURES, HOWEVER, SINCE
THIS FORM IS VOLUNTARY, AND
OFTENTIMES NOT, IT IS,
UNFORTUNATELY IT'S OFTEN NOT
INCLUDED WITH THE TAX RETURN.
AGAIN MAKING SECTION 41
DIFFICULT TO REPORT DIFFICULT TO
PRODUCE. CURRENTLY, WE ARE USING
THE FORM 41 97 TO COLLECT
INFORMATION FROM TAXPAYERS NOT
ONLY ON CANNABIS, BUT EIGHT
OTHER TAX EXPENDITURE PROGRAMS
AS WELL. FOR OTHER DEDUCTIONS
AND CREDITS WHILE NECESSARY DATA
CAN BE COLLECTED ON THOSE TAX
REFORMS. IT TYPICALLY TAKES
AROUND THREE YEARS TO RECEIVE
AND PROCESS ALL OF THE RELEVANT
TAX RETURNS. UM ALL OF THE
RELEVANT RETURNS Dð. TO THE
RETURN FILING DEADLINES, OFTEN
PUSHING US OUT PAST THE DATE
THAT THE SECTION 41 REPORTED AS
REQUIRED TO BE DELIVERED TO THE
LEGISLATURE. SO REGARDLESS, EVEN
WITH TAX RETURN DATA AND AMPLE
TIME, IT CAN BE VERY DIFFICULT
TO PRODUCE A MEANINGFUL ANALYSIS
OF THE EFFICACY OF THE TAX
EXPENDITURE, PARTICULARLY
PARTICULARLY WHEN F T V S ONLY
INSIGHT INTO IS INTO THE NUMBER
OF TAXPAYERS WHO ARE CLAIMING
THE CREDIT AND THE DOLLAR
AMOUNTS CLAIMED ON THE RETURNS.
NOW I'LL TURN IT OVER TO DENNIS
TO DISCUSS A LITTLE BIT MORE ON
TAX EXPENDITURE ADMINISTRATION.
THANK YOU, SUSAN. GOOD MORNING,
MADAM CHAIR AND MEMBERS OF THE
LEGISLATURE. MY NAME IS DENNIS
ARMSTRONG AND I'M, THE
LEGISLATIVE DIRECTOR OF THE
FRANCHISE TAX BOARD. I WILL
SPEND THE REMAINING PORTION OF
OUR TIME DISCUSSING THE
ADMINISTRATIVE ASPECT OF TAX
EXPENDITURES. DEFINITIONS PLAY A
HUGE ROLE IN ENSURING ACCURACY
AND CLARITY WHEN ADMINISTERING
THESE PROGRAMS. IN GENERAL,
TAXPAYER ELIGIBILITY WILL BE
DETERMINED BASED ON FILING
REQUIREMENTS, INCOME LEVELS OR
EXPENSES PAID. THESE ARE KEY
ITEMS THAT REQUIRE CLEAR AND
CONCISE LANGUAGE TO ENSURE
PROPER HANDLING OF THESE
EXPENDITURES. AN EXAMPLE OF THIS
CAN BE FOUND IN ASSEMBLY BILL 1
95 FROM LAST SESSION, WHICH
CREATED TO CANNABIS CREDITS.
THIS BILL DEFINES KEY TERMS BY
UTILIZING EXISTING STATE AND
FEDERAL TERMS, WHICH REDUCES
CONFUSION PROVIDES CLARITY AND
CONSISTENCY FOR ADMINISTERING
THESE PROGRAMS. ASSEMBLY BILL 1
92, THE BETTER FOR FAMILIES TAX
REFUND. DOES A GREAT JOB OF
SPECIFYING THE CALIFORNIA
ADJUSTED GROSS INCOME RANGES
APPLICABLE FOR EACH REFUND
AMOUNT. NEXT IS CLEAR PROCESSES
AND ADMINISTRATIVE
RESPONSIBILITIES. THIS IS
TYPICALLY NECESSARY WHEN THERE
ARE MULTIPLE DEPARTMENTS OR
AGENCIES THAT ARE RESPONSIBLE
FOR ADMINISTERING THESE
PROGRAMS. GOING BACK TO ASSEMBLY
BILL 1 95. THE STATUTE DOES A
GREAT JOB OF DESCRIBING THE
SPECIFIC ROLES THAT F T B AND
THE DEPARTMENT OF CANNABIS
CONTROL HAVE IN ORDER TO
ADMINISTER THE PROGRAM. THIS IS
ESPECIALLY IMPORTANT WHEN
PROGRAMS ARE OUTSIDE OF F T B S
EXPERTISE, SUCH AS THE HEALTH
CARE MANDATE PROGRAM. MOVING
ALONG. I WOULD LIKE TO MENTION
LEAD TIME AND RESOURCES
REQUIRED. FTP STRIVES TO
ADMINISTER CALIFORNIA TAX LAW IN
THE MOST EFFICIENT AND EFFECTIVE
MANNER POSSIBLE. WE TREAT
LEGISLATIVE MANDATES AS A TOP
PRIORITY AT FT. B AND ENSURE
THAT OUR RESOURCES ARE OPERATING
PROPERLY TO ACHIEVE THE DESIRED
RESULT OF THE LEGISLATURE. THERE
ARE SITUATIONS WHEN THE
REQUIREMENTS REQUIRE ADDITIONAL
RESOURCES OR ADDITIONAL LEAD
TIME TO IMPLEMENT. THIS
TYPICALLY HAPPENS WHEN F T B IS
REQUIRED TO BUILD A NEW PROCESS
OR SYSTEM TO ADMINISTER THE
EXPENDITURE. ADDITIONALLY F T B
SYSTEM CONSTRAINTS IMPACT
CERTAIN PROGRAMS AND THE
TIMEFRAME TO IMPLEMENT FOR
INSTANCE, THERE HAS BEEN AN
APPETITE TO TURN OFF TBS OFFSET
PROCESS WHEN DEALING WITH
CERTAIN EXPENDITURES. SO THIS
COULD HAVE NEGATIVE IMPACTS TO
OUR EXISTING PROCESSES. WE ARE
WORKING TOWARDS INTRODUCING THIS
FUNCTIONALITY TO OUR TAX SYSTEMS
FOR THE 2024 TAX YEAR, MOVING
FORWARD. WHILE THIS ISN'T A
COMPREHENSIVE LIST OF
CONSIDERATIONS, I HOPE THIS DOES
ILLUSTRATE THE IMPACTS THAT
CERTAIN PROVISIONS HAVE ON OUR
FTP SYSTEMS AND PROCESSES. WE
CONTINUE TO LOOK FOR INNOVATIVE
WAYS TO IMPLEMENT ALL PIECES OF
ENACTED LEGISLATION AND ARE
ALWAYS OPEN TO COLLABORATIVE
EFFORTS TO IMPROVE OUR
PROCESSES. WE WORK WITH MR ROUGH
AND HIS TEAM AS WELL AS OTHER
AUTHORS OFFICES TO COMMUNICATE
ALL CONSIDERATIONS IN HOPES OF
MAKING THE NECESSARY ADJUSTMENTS
FOR SUCCESSFUL IMPLEMENTATION.
NEXT I WOULD LIKE TO WALK
THROUGH THE DIFFERENCE BETWEEN
STANDARD INCOME TAX CREDITS
VERSUS CAPTAIN ALLOCATED
CREDITS. AS SUSAN MENTIONED
EARLIER TAX CREDITS ARE DIRECT
REDUCTIONS IN THE AMOUNT OF TAX
DUE TAXPAYERS ARE GENERALLY
ELIGIBLE FOR STANDARD CREDITS BY
ENGAGING IN SPECIFIC ACTIVITIES
AND MEETING OTHER SPECIFIED
CRITERIA. TAXPAYERS WOULD THEN
CLAIM THE CREDIT ON THEIR ANNUAL
INCOME TAX RETURN THAN FTP WOULD
VALIDATE THE CREDIT USING OUR
STANDARD TAX RETURN PROCESS.
CAPTAIN. ALLOCATED CREDITS ARE A
BIT MORE NUANCED IN NATURE. THE
MECHANICS OF HOW THE CREDITS
INTERPLAY WITH THE TAXPAYER'S
LIABILITY IS THE SAME, HOWEVER,
CAPPED CREDITS PLACE A HARD CAP
ON THE AMOUNT OF CREDIT THAT CAN
BE CLAIMED AT THE PROGRAM LEVEL.
THIS PRESENTS SOME CHALLENGES TO
F T B AS OUR TAX RETURN
PROCESSING IS NONLINEAR. WE DO
NOT HAVE A WAY OF TIME STAMPING
EACH RETURN THAT CLAIMS THE
SPECIFIC CREDIT TO DETERMINE
WHEN A MAX CREDIT CAP HAS BEEN
REACHED. IT IS ALSO DIFFICULT TO
TRACK PAPER VERSUS ELECTRONIC
FILING TAX RETURNS AGAIN FOR THE
PURPOSE OF TRACKING THAT MAXIMUM
CREDIT AMOUNT. ANOTHER STRUGGLE
WITH THIS TYPE OF CREDIT IS THE
SITUATION IN WHICH A TAX
PREPARER MAY BE HOLDING ONTO
SPECIFIC RETURNS IN ORDER TO
FILE IN BULK. THIS COULD
POTENTIALLY DISALLOW A TAXPAYER
FROM BEING ELIGIBLE FOR A
CERTAIN EXPENDITURE. MANY TIMES
AS AN ASSEMBLY BILL. 1 95
CREDITS HAVE A RESERVATION
REQUIREMENT IN ORDER TO EASE
THESE IMPLEMENTATION CONCERNS.
TAXPAYERS CLAIMING THIS TYPE OF
CREDIT ARE REQUIRED TO OBTAIN A
CREDIT RESERVATION PRIOR TO
FILING OF TAX RETURN, CLAIMING
THIS CREDIT THIS ALLOWS THE
FRANCHISE TAX BOARD TO KEEP
TRACK OF THE AMOUNT OF TAXPAYERS
THAT ARE OBTAINING A RESERVATION
IN ORDER TO TURN OFF THE SYSTEM
WHEN THE CREDIT CAP HAS BEEN
REACHED. WHILE WE UNDERSTAND
WHAT WE CERTAINLY UNDERSTAND THE
VALUE OF SEARCH OF SUCH SYSTEMS
THEY DO ADD A LAYER OF
COMPLEXITY, IMPACTING FTV SPEED
AND AGILITY TO ADMINISTER THESE
PROGRAMS. ALLOCATED CREDITS
CREDITS IN WHICH THERE WAS A
CERTAIN AMOUNT ALLOCATED TO A
TAXPAYER FROM A CERTAIN FROM A
CONTROL ENTITY BASED ON CERTAIN
QUALIFIED ACTIVITIES. THIS
ALLOCATION IS A MAXIMUM CREDIT
AMOUNT THAT CAN BE UTILIZED BY
THE TAXPAYER AND GENERALLY BOTH
F T B AND THE TAXPAYER ARE
NOTICED AS TO THE ALLOCATED
CREDIT AMOUNT. UNDER CURRENT
STATUTES. THESE ALLOCATED
CREDITS ARE ALSO CAPPED AT THE
PROGRAM LEVEL TO RECOGNIZE THE
SET AMOUNT ALLOCATED TO THE
SPECIFIC TAX PROGRAM. AN EXAMPLE
OF THIS CAN BE FOUND IN THE
MOTION PICTURE CREDIT WHERE THE
CALIFORNIA FILM COMMISSION
PROVIDES A CERTIFICATE TO
QUALIFY TAXPAYERS WITH THE
ALLOCATED CREDIT AMOUNT LISTED.
LASTLY I WOULD LIKE TO SHARE A
FEW THOUGHTS ON OUR AUDIT
PROCESS. OR AUDIT PROCESS IS
CONSIDERED PROPRIETARY IN ORDER
TO PROTECT THE INTEGRITY OF OUR
AUDIT PROGRAMS AND PROCESSES.
HOWEVER WE CAN STATE THAT NORMAL
RULES SELECTING AUDIT CANDIDATES
FOR EVERY AUDIT TYPE, APPLY AND
STRONGLY RELY ON THE
CONSIDERATION THAT NONCOMPLIANCE
EXISTS. WE DO MAINTAIN AN
EQUITABLE AUDIT PROCESS BY
DEVELOPING KNOWLEDGEABLE AND
ENGAGED EMPLOYEES WHO
RESPONSIBLY CONDUCT AUDITS WITH
INTEGRITY AND FAIRNESS. THIS
CONCLUDES OUR PRESENTATION ON
TAX EXPENDITURES. THANK YOU VERY
MUCH FOR YOUR TIME. AND I WANT
TO REMIND ALL THE MEMBERS THAT
WE HAVE TWO MORE PRESENTATIONS.
AND THEN WE WILL BE OPEN FOR
QUESTIONS. SO, UH, OUR FINAL
PRESENTERS WILL BE REPRESENTING
CDT ESTÁ MICHELLE LINTON, CHIEF
OF THE LEGISLATIVE BUREAU, AND
BRADLEY MILLER IS THE BUSINESS
TAXES SPECIALIST AT THE
DEPARTMENT. C D T F A HAS BEEN
ASKED TO PROVIDE AN OVERVIEW OF
TAX EXPENDITURES THEY ADMINISTER
AND DIFFICULTIES IN THEIR
ADMINISTRATION. CLINTON AND MR
MILLER. PLEASE START WHEN YOU'RE
READY. THANK YOU. GOOD MORNING,
MADAM CHAIR AND COMMITTEE
MEMBERS. I'M MICHELLE LINTON.
I'M THE LEGISLATIVE DIRECTOR FOR
THE CALIFORNIA DEPARTMENT OF TAX
AND FEE ADMINISTRATION. AND I
HAVE WITH ME TODAY. BRAD MILLER
, A BUSINESS TAXES SPECIALIST
FROM CTF FACE TAX POLICY BUREAU
, AND BRAD AND I WILL BE SORT OF
JUMPING BACK AND FORTH, UM,
SHARING THE DIVISION OF LABOR ON
THIS PRESENTATION. C D T F A
FIRST SIGHT, PLEASE. C D T F A
ADMINISTERS 39 TAX AND FEE
PROGRAMS, INCLUDING SALES AND
USE, TAX, CANNABIS TAXES,
CIGARETTE AND TOBACCO PRODUCTS.
TAXES FUEL TAXES, HAZARDOUS
WASTE FEES AND 911 SURCHARGE,
AMONG OTHERS. TOGETHER THESE
PROGRAMS GENERATED OVER $94
BILLION IN REVENUE FOR FISCAL
YEAR 21 22. NEXT SLIDE, PLEASE.
C D. T F A ALLOCATES REVENUES TO
A VARIETY OF FUNDS. THE SALES
AND USE TAX RATE IS COMPRISED OF
STATE, LOCAL AND DISTRICT
TRANSACTIONS AND USE TAXES. FOR
THE 21 22 FISCAL YEAR, THE STATE
COMPONENT INCLUDED $34 BILLION
ALLOCATED TO THE STATE'S GENERAL
FUND. 9.1 BILLION ALLOCATED TO
THE STATES. LOCAL REVEREND
REVENUE FUND 2011. $4.7 BILLION
TO THE STATES LOCAL REVENUE
FUND. $4.7 BILLION ALLOCATED TO
THE LOCAL PUBLIC SAFETY FUND AND
11.6 BILLION FROM THE ONE AND A
QUARTER PERCENT. BRADLEY BERMS,
BURNS UNIFORM, LOCAL SALES AND
USE TAX, WHICH IS ALLOCATED
AMONG ALL THE STATES, 58
COUNTIES AND 482 CITIES. NEXT
SLIDE, PLEASE. AND I'LL HAND IT
OVER TO BRAD. GOOD MORNING. I'M
BRAD MILLER WITH THE CTF, A AS
MICHELLE MENTIONED WE THE C D. T
F A ALSO COLLECTS AND ALLOCATES
THE ONE AND A QUARTER PERCENT.
BRADLEY BYRNE'S UNIFORM LOCAL
SALES AND USE TAX FOR ALL
CALIFORNIA CITIES AND COUNTIES.
FOR EACH SALE, ONE QUARTER
PERCENT GOES TO THE COUNTY
TRANSPORTATION FUNDS AND 1% GOES
TO CITY OR COUNTY OPERATIONS.
THE LOCAL PORTION OF SALES AND
USE TAXES IS ALLOCATED TO CITIES
AND COUNTIES BASED ON A COMPLEX
SET OF RULES THAT DEPEND ON A
VARIETY OF FACTORS THAT DIFFER
DEPENDING ON WHETHER THE SALE IS
CHARACTERIZED AS THE SALES TAX
OR A USE TAX. THESE INCLUDE
WHERE THE SALE TAKES PLACE WHERE
THE PROPERTY IS FIRST USED AND
THE LOCATION OF THE CUSTOMER.
DISTRICT TAXES. C D T F A ALSO
COLLECTS AND DISTRIBUTES VOTER
APPROVED DISTRICT TEXTS,
TRANSACTIONS SALES AND USE TAXES
ON BEHALF OF TEST TAX DISTRICTS
THROUGHOUT THE STATE. THESE
DISTRICT TAXES FUND, A RANGE OF
LOCAL SERVICES AND
INFRASTRUCTURE, INCLUDING
GENERAL GOVERNMENT.
TRANSPORTATION PROJECTS, OPEN
SPACE HOSPITALS AND PUBLIC
LIBRARIES. IN FISCAL YEAR 21 22
CTF ADMINISTERED 379 DISTRICT
TAXES. CONSISTING OF 63
COUNTYWIDE DISTRICTS. 313
CITYWIDE DISTRICTS AND THREE
UNINCORPORATED AREA DISTRICTS.
DISTRICT TAX RATES VARY BY
DISTRICT AND REVENUES TOTALED
$13.7 BILLION. NEXT SLIDE. HMM.
SPECIAL TAXES IN ADDITION TO THE
SALES AND USE TAX CGT FAA
ADMINISTERS NUMEROUS SPECIAL
TAXES AND FEES. C D. T F A
SPECIAL TAXES AND FEES ARE
ALLOCATED TO FUND SPECIFIED IN
LEGISLATION AND HELP MAINTAIN
OUR ROADS AND HIGHWAYS PROVIDE
EMERGENCY SERVICES SUCH AS THE
911 EMERGENCY TELEPHONE SERVICE.
PRESERVE OUR NATURAL RESOURCES
AND OFFER SOCIAL SERVICES AND
HEALTH CARE PROGRAMS. NEXT
SLIDE, PLEASE. C D T F A AS THE
DEPARTMENT OF FINANCE DOES
GENERALLY CONSIDERS TAX
EXPENDITURES TO BE PROVISIONS IN
STATE LAW THAT REDUCED REVENUE
THROUGH PREFERENTIAL TAX
TREATMENT. CREDITS EXEMPTIONS,
EXCLUSIONS OR ANY OTHER TAX
BENEFITS THE STATE PROVIDES, BUT
WE'LL FOCUS ON THE CREDIT
EXEMPTION AND EXCLUSIONS. A
CREDIT IS AN OFFSET AGAINST TAX
LIABILITY, SO AN EXAMPLE OF A
CREDIT WOULD BE THE MAIN STREET
SMALL BUSINESS TAX CREDITS THAT
WERE APPLIED EITHER INCOME OR
SALES TAXES TO OFFSET THE
BURDENS OF COVID 19 ON THE STATE
SMALL BUSINESSES. AN EXEMPTION
IS LIKE AN EXCEPTION TO TAX AND
POSITION FOR CERTAIN TYPES OF
TRANSACTIONS. AN EXAMPLE IS THE
MANUFACTURERS RESEARCH AND
DEVELOPMENT EQUIPMENT EXEMPTION.
AN EXCLUSION FROM TAX MEANS THAT
CERTAIN TYPES OF PROPERTY ARE
NOT INCLUDED IN GROCERY SEATS OR
THE SALES PRICE AT ALL BECAUSE
OF CERTAIN DEFINITIONS, OR THEY
DON'T INVOLVE A TRANSFER OF
TANGIBLE PERSONAL PROPERTY. FOR
EXAMPLE, CERTAIN CASH DISCOUNTS
AND CHARGES FOR INSTALLATION,
LABOR ADMISSION CHARGES OR THE
SALE OF SECURITIES ARE ALL
EXCLUDED FROM TAX. BRAD ATTACK.
NEXT SLIDE, PLEASE THE TAX
EXPENDITURES THAT RESULT IN THE
GREATEST REVENUE LOSSES ARE
EXEMPTIONS FOR THE NECESSITIES
OF LIFE, INCLUDING FOOD,
ELECTRICITY AND MEDICINE. SALES
OF FOOD FOR HUMAN CONSUMPTION OR
GENERALLY EXEMPT FROM TAX WITH
SEVERAL EXCEPTIONS. REVENUE LOSS
FROM THIS EXEMPTION AMOUNTS TO
$9.8 BILLION A YEAR. THE SALE OF
GAS, ELECTRICITY AND WATER,
INCLUDING STEAM AND GEOTHERMAL
STEAM. BRIAN'S AND HEAT ARE
EXEMPT FROM TAXATION IS
DELIVERED THROUGH MAINS LINES OR
PIPES. FURTHER CERTAIN SALES OF
WATER TO INDIVIDUALS FOR
HOUSEHOLD USE, AND CERTAIN SALES
OF LIQUID PETROLEUM GAS ARE
EXEMPT FROM TAX UNDER CERTAIN
CIRCUMSTANCES. REVENUE LOSS FROM
THESE EXEMPTIONS TOTAL 6.2
BILLION. PRESCRIPTION MEDICINES
AND CERTAIN MEDICAL DEVICES ARE
EXEMPT FROM SALES AND USE TAX
PROVIDED CERTAIN CONDITIONS ARE
MET. OVER THE COUNTER MEDICATION
IS NOT EXEMPT. REVENUE LOSS FROM
THIS EXEMPTION AMOUNTS TO 5.2
BILLION. SOME TAX EXPENDITURES
ARE DESIGNED TO HELP CERTAIN
INDUSTRIES. FOR EXAMPLE, UM THE
EXCLUSION FOR QUALIFIED MOTION
PICTURES AND QUALIFIED
PRODUCTION SERVICES, A TRANSFER
OF ANY QUALIFIED MOTION PICTURE
OR ASSOCIATED RIGHTS IF DONE
PRIOR TO THE DATE QUALIFIED
MOTION PICTURES BROADCAST AND
THE PERFORMANCE OF PRODUCTION
SERVICES AND CONNECTION WITH THE
PRODUCTION OF THAT MOTION
PICTURE ARE EXCLUDED FROM THE
DEFINITION OF SALE AND PURCHASE
REVENUE FROM THIS EXCLUSION
AMOUNTS TO $158 MILLION
ANNUALLY. ALSO THE MANUFACTURING
AND RESEARCH AND DEVELOPMENT
EQUIPMENT EXEMPTION. UM, SALES
PURCHASES AND LEASES OF
MANUFACTURING AND RESEARCH AND
DEVELOPMENT EQUIPMENT ARE EXEMPT
FROM THE 3.9375% PORTION OF THE
SALES AND USE TAX RATE WHEN SOLD
TO OR PURCHASED BY QUALIFYING
MANUFACTURERS AND CERTAIN
RESEARCHES, RESEARCHERS AND
DEVELOPERS. FOR USE PRIMARILY
AND MANUFACTURING AND RESEARCH
AND DEVELOPMENT ACTIVITIES.
REVENUE LOST FROM THIS EXEMPTION
AMOUNTS TO $343 MILLION
ANNUALLY. ADDITIONALLY SALES AND
PURCHASES OF FARM EQUIPMENT
MACHINERY AND THEIR PARTS ARE
EXEMPT FROM 5% OF THE SALES AND
USE TAX RATE WHEN SOLD TO WERE
PURCHASED BY QUALIFIED PERSONS
ENGAGED IN THE BUSINESS OF
PRODUCING AND HARVESTING
AGRICULTURAL PRODUCTS OR WHEN
SOLD TO QUALIFIED PERSONS THAT
ASSIST THEM. REVENUE LOST FROM
THIS EXEMPTION AMOUNTS TO $147
MILLION ANNUALLY. OTHER TAX
EXPENDITURES MAY BE ENACTED TO
SUPPORT VALUES LIKE CHARITABLE
WORK OR ALTERNATIVE ENERGY, FOR
EXAMPLE, THE SALE AND USE OF
MEALS THAT ARE DELIVERED TO
HOMEBOUND ELDERLY OR DISABLED
PERSONS BY A NONPROFIT HOME
DELIVERY MEAL PROVIDER ARE
EXEMPT FROM TAX REVENUE LOSS
FROM THIS EXEMPTION AMOUNTS TO
$138 MILLION ANNUALLY. AND WE
ALSO VALUE ALTERNATIVE ENERGY,
SO THERE'S AN EXCLUSION FOR
QUALIFYING ENTITIES THAT APPLY
FOR FINANCIAL ASSISTANCE FROM
THE CALIFORNIA ALTERNATIVE
ENERGY AND ADVANCED
TRANSPORTATION FINANCING
AUTHORITY FOR SPECIFIED TANGIBLE
PERSONAL PROPERTY PURCHASE FOR
PROJECTS THAT PROCESS OR USE
RECYCLED FEEDSTOCK OR THAT ARE
USED IN THE STATE FOR ADVANCED
MANUFACTURING AND ADVANCED
TRANSPORTATION TECHNOLOGIES.
REVENUE LOST FROM THIS EXEMPTION
IS $89 MILLION ANNUALLY. FRIEND.
NEXT SLIDE, PLEASE. HMM SOME
EXEMPTIONS SUCH AS THE
MANUFACTURING SALES AND USE TAX
EXEMPTION AND THE FARM EQUIPMENT
EXEMPTIONS THAT MICHELLE
PREVIOUSLY MENTIONED ARE PARTIAL
EXEMPTIONS. WHICH MEANS THAT
CERTAIN COMPONENTS OF THE SALES
AND USE TAX RATES ARE IMPOSED,
WHILE OTHERS ARE NOT. OTHER
PARTIAL EXEMPTIONS THAT
CURRENTLY EXISTS INCLUDE SALES
OF GASOLINE, WHICH IS A 5%
EXEMPTION. IT'S IMPORTANT TO
NOTE WITH SALES OF GASOLINE THAT
THE REDUCED SALES TAX RATE IS
OFFSET BY AN INCREASED EXCISE
TAX RATE PER GALLON. TELE
PRODUCTION OR OTHER POST
PRODUCTION SERVICE EQUIPMENT HAS
A 5% EXEMPTION. DIESEL FUEL USED
IN FARMING ACTIVITIES OR FOOD
PROCESSING IS 5. TIMBER
HARVESTING EQUIPMENT HAS 5%
EXEMPTION. RACEHORSE BREEDING
STOCK 5. ZERO EMISSION TRANSIT
BUSSES IS 3.9375. ZERO EMISSION
MOTOR VEHICLES 3.9375. AND
FINALLY, DIESEL FUEL IS A
TEMPORARY PARTIAL EXEMPTION
OPERATIVE OCTOBER 1 2022 THROUGH
SEPTEMBER 30 2023 AT 3.9375.
USUALLY A PARTIAL EXEMPTION IS
ENACTED TO PROTECT LOCAL
REVENUES. HOWEVER THEY CAN
COMPLICATE COMPLIANCE FOR
TAXPAYERS. THIS IS BECAUSE THE
RATES VARY DEPENDING ON WHICH
PORTIONS OF THE SALES AND USE
TAX RATE ARE EXEMPTED. FOR
EXAMPLE, ONE PARTIAL EXEMPTION
MAYBE 5% OF THE RATE, WHILE
ANOTHER MAY EXEMPT 3.9375% WHEN
TAXPAYERS STRUGGLE TO COMPLY.
TAXPAYERS MAKE MORE ERRORS IN
REPORTING. THE MORE CONDITIONS
THAT ARE IMPOSED ON AN EXEMPTION
, THE MORE COMPLICATED IT IS FOR
THE TAXPAYER. FOR EXAMPLE,
REGARDLESS OF WHETHER WE'RE
TALKING ABOUT A FULL EXEMPTION
OR PARTIAL EXEMPTION. IF AN
EXEMPTION ONLY APPLIES TO
CERTAIN PEOPLE AND CERTAIN
INDUSTRIES FOR SPECIFIED
PROPERTY USED IN A SPECIFIED
MANNER, IT IS MORE DIFFICULT FOR
THE TAXPAYER THAN AN EXEMPTION
THAT HAS ONLY A SINGLE
QUALIFICATION. C D T F A
MAINTAINS A ROBUST AUDIT PROGRAM
TO ENSURE BUSINESSES REPORT THE
CORRECT AMOUNT OF TAX NO MORE
AND NO LESS. THE EXISTENCE OF AN
AUDIT PROGRAM ENCOURAGES
VOLUNTARY COMPLIANCE AND THE
VAST MAJORITY OF THE TAXES THAT
WE COLLECT OUR VOLUNTARY
VOLUNTARILY REMITTED. C D. T F A
AUDITS. CONSTANT AUDITS
CONCENTRATE ON THE THOSE MOST
LIKELY TO BE INACCURATE IN THEIR
TAX REPORTING. TO HELP US BETTER
IDENTIFY ACCOUNTS MOST IN NEED
OF AUDIT. WE ARE UTILIZING DATA
ANALYTICS WITH MACHINE LEARNING
TO IDENTIFY REPORTING ERRORS. WE
ARE ALSO PERFORMING MORE DESK
AUDITS EARLY ON TO IDENTIFY
UNDER REPORTING AND AVOID
REPEATED MISTAKES AND MORE
PENALTIES AND SUBSEQUENT
PERIODS. THIS ALLOWS US TO
PERFORM MORE AUDITS AT LOWER
COST AND REDUCES THE NEED FOR
MORE BURDENSOME AUDITS LATER
DOWN THE ROAD. IN FISCAL YEAR 21
22. THE SALES AND USE TAX AUDIT
PROGRAM DISCLOSED DEFICIENCIES
OF NEARLY $477.3 MILLION.
TAXPAYERS ALSO RECEIVED OVER
209.1 MILLION AND AUDIT RELATED
SALES AND USE TAX REFUNDS. AND
THAT CONCLUDES OUR PRESENTATION.
THANK YOU VERY MUCH. WE'RE GOING
TO OPEN IT FOR QUESTIONS FROM
THE, UM FROM THE DIOCESE, BUT I
FIRST WANTED TO ASK MR WHITE.
OBVIOUSLY WE'VE HEARD HOW
COMPLICATED IT IS TO ADMINISTER
AND CALCULATED SOME OF THESE TAX
EXPENDITURES. HOW DOES THIS
IMPACT THE BUDGET FORECASTING
EFFORTS? AND WITH THESE
UNCERTAINTIES, HOW DOES THE
DEPARTMENT ACCOUNT FOR THOSE?
WELL, WE, UM. THE REVENUE
FORECASTING PROCESS CONSISTS OF
MANY MANY FACETS, INCLUDING
STARTING WITH AN ECONOMIC
FORECAST THAT UNDERLIES THE
ENTIRE FORECAST. AND THEN FROM
FROM THEIR, UH, WE'RE MOVING TO,
UH, TO TRANSLATE THAT TO A
REVENUE FORECAST FOR THE STATE
OF THE TAX EXPENDITURES ARE IF,
FOR EXAMPLE, IF IT'S A NEW TAX
EXPENDITURE, WE WOULD WE WOULD
MAKE AN ESTIMATE GOING FORWARD,
AND WE WOULD OVERLAY THAT ON TOP
OF THE FORECAST TAX EXPENDITURES
LIKE FOR EXAMPLE, THE RESEARCH
AND DEVELOPMENT TAX CREDIT WE
HAVE WE HAVE TAX DATA GOING BACK
AND WE, YOU KNOW, WE PREPARE
ESTIMATES GOING FORWARD AND
THAT'S INCORPORATED. INTO OUR
FORECAST, SO IT'S REALLY WE HAVE
THE NEW THE NEW PASTOR ENTITY
ELECTIVE TAX, WHICH IS A VERY
LARGE IT'S NOT A TAX EXPENDITURE
, BUT IT'S A VERY LARGE LARGE
COMPONENT OF OUR FORECASTING AT
THIS POINT DUE TO ITS SIZE, SO
IT'S A COMBINATION OF YEAH
ECONOMIC ECONOMIC FORECAST AND
BUT THEN THE WE HAVE TO. WE HAVE
TO LOOK AT ALL THESE TAX
EXPENDITURES. SOME OF THEM WE
DON'T LOOK AT INDIVIDUALLY.
THEY'RE PART OF THE BASE, YOU
KNOW, PERSONAL INCOME TAX
EMPLOYER PROVIDED HEALTH
INSURANCE. THAT'S ALL SORT OF
PART OF THE BASE COLLECTIONS.
IT'S NOT A IT'S NOT A MUCH OF A
FORECASTING ISSUE AT THIS POINT.
SO THERE'S DIFFERENT FACETS,
DEPENDING ON THE AGE OF THE TAX
EXPENDITURE, HOW LONG IT'S BEEN
THE BASE AND WHAT TYPE OF TAX
EXPENDITURE OR CREDIT VERSUS A
DEDUCTION AND THINGS LIKE THAT.
ALL RIGHT. THANK YOU. QUESTIONS
FROM THE DIET. ALL RIGHT. WELL
YOU MUST HAVE ANSWERED ALL OF
THEM THEN. SO UM, THANK YOU VERY
MUCH, AND, UM, WE WILL GO AHEAD
AND MOVE ON TO OUR SECOND PANEL.
WE HAVE BRIAN ULNAR. PROFESSOR
DARREN SENSE, SANSKI AKILA
KITSON PRESTON YOUNG. ON OUR
SECOND PANEL.
ALL RIGHT, FIRST UP. WE HAVE
BRIAN EULER DID PRONOUNCE THAT
INCORRECTLY WITH THE LEGISLATIVE
ANALYST'S OFFICE. THE LAO HAS
BEEN ASKED TO DESCRIBE THE MEANS
BY WHICH THE LEGISLATURE
EVALUATES THE EFFECTIVENESS OF
TAX EXPENDITURES. YOU MAY BEGIN
WHEN YOU'RE READY. THANK YOU,
MADAM. CHAIR BRIAN EULER FROM
THE LAO. UM, I'VE PREPARED A
HANDOUT FOR YOUR REFERENCE TODAY
AND PRIMARILY JUST AS A SUMMARY
OF SOME OF THE KEY POINTS FROM
MY PRESENTATION FOR YOUR FUTURE
REFERENCE. THE FIRST PART OF THE
HANDOUT COVERS SOME BACKGROUND
INFORMATION ON WHAT DATA THE
STATE KIND OF CURRENTLY COLLECTS
AND MAINTAINS ON TAX
EXPENDITURES. A LOT OF THAT WAS
COVERED BY THE PREVIOUS PANEL,
SO I WON'T COVER THAT AGAIN, BUT
I JUST TO ELABORATE ON ON ONE
POINT THERE IN PARTICULAR. UM A
LOT OF, UM, SOMETIMES SOME
IMPORTANT QUESTIONS COME UP
AROUND TACTICS FURNITURES AROUND
DISTRIBUTIONAL ISSUES, AND THERE
ARE SOME IMPORTANT LIMITATIONS
IN TERMS OF THE DATA WE
CURRENTLY HAVE ON ON TAX
EXPENDITURES. IN TERMS OF HOW
HOW MANY OF THOSE KINDS OF
DISTRIBUTIONAL QUESTIONS WE CAN
ANSWER. WE IN A LOT OF CASES, WE
KNOW BASIC INFORMATION ABOUT YOU
KNOW WHERE IN THE INCOME
DISTRIBUTION, UH, TAX CUTS, TAX
EXPENDITURE, CLAIMANTS FALL. WE
MIGHT KNOW WHAT INDUSTRY SECTOR
THERE IN OR WHAT TYPE OF
BUSINESS THEY ARE. AH, BUT IN
MOST CASES, THERE'S VERY LIMITED
OR NO INFORMATION ON
DEMOGRAPHICS, THINGS LIKE RACE
AND ETHNICITY AND EDUCATION
LEVELS. UM AND SO QUESTIONS
AROUND DISTRIBUTION ON THOSE
FACTORS ARE VERY DIFFICULT TO
ANSWER IN MANY CASES. AH SO WITH
THAT, MOVING INTO THE SECOND
PART OF THE HANDOUT, WHICH IS
CONSIDERATIONS FOR THE
LEGISLATURE ON EVALUATING TAX
EXPENDITURES, AND I THINK IT'S
IMPORTANT TO START THE
DISCUSSION WITH THE FACT THAT
MOST OF THE STATE'S TAX
EXPENDITURES ARE RARELY IF EVER
EVALUATE. ANOTHER ARE SOME
IMPORTANT EXCEPTIONS. THE CHAIR
MENTIONED THE EFFORTS THE STATE
HAS UNDERTAKEN AND THEN THE
LEGISLATURE IS UNDERTAKEN IN
RECENT YEARS TO APPLY MORE
SCRUTINY TO TAX EXPENDITURES
THAT HAVE BEEN ADOPTED MORE
RECENTLY, AND SO TAX
EXPENDITURES PUT IN PLACE OVER
THE LAST DECADE OR SO DEFINITELY
HAVE MORE EVALUATION AND DATA
COLLECTION THAN SOME OF THE
STATES. OLDER TAX EXPENDITURES.
ANOTHER EXAMPLE ANOTHER KIND OF
EXEMPT EXCEPTION TO, UH THIS IS
TAX EXPENDITURES THAT THE STATE
SHARES WITH OTHER STATES OR
MUNICIPALITIES OR OTHER
JURISDICTIONS. WHERE ACADEMIC
RESEARCHERS ESSENTIALLY BECAUSE
OF THE BROAD APPLICATION OF
THESE TAX EXPENDITURES, HAVE
MORE INCENTIVE HAVE MORE
OPPORTUNITY TO EVALUATE THOSE,
UH AND SO WE HAVE MORE
LITERATURE TO LOOK TOO ON SOME
LIMITED NUMBER OF THESE TAX
EXPENDITURES. A COUPLE OF
EXAMPLES ARE THE FILM TAX CREDIT
AND THE RESEARCH AND DEVELOPMENT
CREDIT. NOW THESE STUDIES ARE
OFTEN NOT SPECIFIC TO CALIFORNIA
. NONETHELESS THEY CAN HELP
PROVIDE VALUABLE INFORMATION ON
THINKING ABOUT THE STATE'S TAX
EXPENDITURES. UM ONE REASON THAT
A LOT OF ESPECIALLY THE OLDER
TAX EXPENDITURES ARE RARELY
EVALUATED IS THAT GOOD
EVALUATION IS BOTH DIFFICULT AND
TIME. TIME INTENSIVE CAN REQUIRE
PIECING TOGETHER MANY DISPARATE
SOURCES OF DATA PERFORMING A
VARIETY OF DATA ANALYSES TALKING
TO RELEVANT STAKEHOLDERS TO
UNDERSTAND THE NUANCES OF THE
PROGRAM AND ITS ADMINISTRATION.
IT CAN INVOLVE REVIEWING THE
ACADEMIC LITERATURE THAT MAY
EXIST ON IT AND TRYING TO PUT
ALL THESE PIECES TOGETHER AND TO
KIND OF A COHERENT EVALUATION.
OF THE TAX EXPENDITURES,
EFFICACY. AND SO TO GIVE YOU AN
EXAMPLE. OUR OUR OFFICE HAS A
SMALL UNIT OF FOLKS WHO A
PORTION OF THEIR TIME CAN BE
SPENT ON TEXT COMMANDER FOR TAX
EXPENDITURE EVALUATION. UH AND
WHEN WE DO UNDERTAKE ONE OF
THOSE, IT MIGHT REQUIRE
DEDICATING ONE OR MORE STAFF OF
FOR SIX MONTHS OR MORE TO
PRODUCE A SINGLE EVALUATION. UM
SO JUST TO GIVE KIND OF A SENSE
OF, AT LEAST FROM OUR
PERSPECTIVE, WHAT IT TAKES TO
PROVIDE THAT KIND OF IN DEPTH
EVALUATION OF A TAX EXPENDITURE.
SO THINKING A LITTLE BIT MORE
ABOUT WHAT ARE SOME OF THE
COMPLICATIONS THAT ADDS
COMPLEXITY TO EVALUATING A TAX
EXPENDITURE. OFTEN DISCUSSIONS
ON EVALUATING A TAX EXPENDITURE
WILL START WITH SOME OF THE
BASICS ON HOW MANY TAXPAYERS ARE
CLAIMING THIS TAX EXPENDITURE.
WHAT'S THE DOLLAR VALUE OF THAT
OF THOSE CLAIMS? WHAT SORT OF
OUTCOMES ARE THE REPORTING? FOR
EXAMPLE? YOU KNOW HOW MANY TAX
CREDITS ARE BEING ALLOCATED TO
CALIFORNIA COMPETES TAX CREDIT
RECIPIENTS AND HOW MANY JOBS DO
THEY SAY THAT THEY'RE THEY'RE
CREATING. THAT'S A THAT'S A VERY
IMPORTANT PIECE OF INFORMATION
AND BASELINE FOR THE EVALUATION,
BUT IT IT'S THE VALUE YOU KNOW
THAT DOES NOT PROVIDE A FULL
PICTURE OF REALLY THE EFFICACY
OF THE TAX EXPENDITURE, AND
THERE'S A NUMBER OF IMPORTANT
CONSIDERATIONS THAT HAVE TO BE
LAYERED ONTO THAT IN ORDER TO
GET A MORE COMPLETE PICTURE. UM
AND MY COLLEAGUE KOBE WHITE FROM
DEPARTMENT OF FINANCE DID
MENTION A FEW OF THESE IN HIS
PRESENTATION, BUT MAYBE JUST TO
ADD A LITTLE BIT MORE. DETAIL ON
SOME OF THEM. THE FIRST
IMPORTANT CONSIDERATION IS WHAT
IS SOMETIMES CALLED THE BUT FOR
QUESTIONS OR WHAT KOBE REFERRED
TO AS THE QUESTION OF KIND OF
WINDFALL BENEFITS. UH AND THIS
IS THE IDEA OF YOU KNOW WHAT
EXTENT WOULD WHATEVER THEY
DESIRED ACTIVITY? UH OCCUR IN
THE ABSENCE OF THE TAX
EXPENDITURE. YOU KNOW, TEXAS
MANAGER OR TAXPAYERS ARE OFTEN
WILL UNDERTAKE AN ACTIVITY. UM.
UH WELL, EXCUSE ME THAT WILL
RECEIVE A TAX BENEFIT FOR TAX
BENEFIT FOR AN ACTIVITY THAT
THEY WOULD HAVE UNDERTAKEN
ANYWAY. AND, IN FACT THE
CONSENSUS ON THE LITERATURE THAT
EXISTS SO FAR SEEMS TO SUGGEST
THAT IN MOST CASES THE MAJORITY
OF TAXPAYERS ARE RECEIVING A SO
CALLED WINDFALL BENEFIT FOR TAX
EXPENDITURES THAT HAVE BEEN
EVALUATED GENERALLY. UM A SECOND
KEY CONSIDERATION IS INDIRECT
EFFECTS. AND SO THESE ARE KIND
OF DOWNSTREAM SECONDARY EFFECTS
ON NON RECIPIENTS THAT MIGHT
OCCUR BECAUSE OF AN ACTION THAT
THAT A TAXPAYER RECEIVING A TAX
EXPENDITURE TOOK SO THESE CAN
BOTH POSITIVELY AND NEGATIVELY
AFFECT THE OVERALL ASSESSMENT OF
A TAX EXPENDITURE AND EXAMPLE OF
A POSITIVE INDIRECT BENEFIT.
MAYBE THAT TAX EXPENDITURE
ENCOURAGES A BUSINESS TO HIRE AN
ADDITIONAL WORKER. THAT WORKER
USES THEIR WAGES AND THE LOCAL
ECONOMY THAT YOU KNOW, SUPPORTS
ADDITIONAL JOBS. SO THAT'S AN
EXAMPLE OF A POSITIVE INDIRECT
EFFECT. AN EXAMPLE OF A NEGATIVE
INDIRECT EFFECT IS, UH, SO
CALLED CROWD OUT EFFECTS. SO YOU
MIGHT HAVE, UH, YOU KNOW, AN
EXAMPLE COULD BE A TAX CREDIT
THAT IS TRYING TO ENCOURAGE
HOMEBUILDING. UH AND AS WE KNOW
, LAND IS VERY SCARCE IN MANY IN
MANY AREAS AND SO A TAX CREDIT
GIVEN TO ONE DEVELOPER THAT
ALLOWS THEM TO MOVE THE PROJECT
FORWARD MAY TAKE UP PARCEL THAT
COULD HAVE BEEN USED BY
COMPETING DEVELOPER. AND SO THE
NET EFFECT ON OVERALL
HOMEBUILDING IS UNCLEAR. UM THE
FINAL IMPORTANT PIECES IS
THINKING ABOUT OPPORTUNITY
COSTS. UM AND SO THE BASIC IDEA
BEING THE STATE LOSES REVENUE
WITH HAVING THESE TAX
EXPENDITURES IN PLACE. WE COULD
HAVE SPENT THAT ON ALTERNATIVE
PROGRAMS. THE THOSE ALTERNATIVE
PROGRAMS ALSO HAVE IMPORTANT.
ECONOMIC AND OTHER BENEFITS THAT
NEED TO BE WEIGHED AGAINST
WHATEVER MEASURE BENEFITS WE MAY
HAVE FOR THE TAX EXPENDITURE. UM
SO SPENDING A LITTLE BIT MORE
TIME ON THE FIRST OF THOSE
CONSIDERATIONS THAT WHAT I
CALLED THE KIND OF BUT FOR
QUESTION OR THE WINDFALL
BENEFITS QUESTION. UM AS WE
MENTIONED. THIS IS A VERY
DIFFICULT QUESTION TO ANSWER. WE
REALLY HAVE NO WAY OF KNOWING
FOR CERTAIN WHAT WOULD HAVE
HAPPENED IN AN ALTERNATIVE
UNIVERSE WHERE THE TAXES
COMPETITORS DIDN'T EXIST. AH
THERE ARE SOME METHODS THAT WE
HAVE OF TRYING TO ANSWER THIS
QUESTION. AND THERE ARE SOME
BETTER WAYS OF DOING IT IN SOME
WORSE WAYS OF DOING AND SO JUST
TO GIVE YOU A SENSE OF SOME KIND
OF CRITERIA YOU COULD BE LOOKING
FOR AND THINKING ABOUT WHETHER
OR NOT A STUDY THAT IS TRYING TO
MEASURE THIS KIND OF WINDFALL
BENEFITS. QUESTION UH, IS DONE
WELL OR NOT. AND SO ONE
IMPORTANT QUESTION IS UM IS THE
FOCUS OF THE STUDY TARGETED
CORRECTLY, IS IT IS IT THINKING
ABOUT THE CORRECT TARGET
POPULATION FOR THE GOAL OF THE
TAX EXPENDITURE? SOMETIMES THAT
MIGHT BE, UH, THE TAX
EXPENDITURE RECIPIENTS
THEMSELVES. WE ONLY CARE ABOUT
CHANGING THEIR BEHAVIOR AND NOT
ANY OTHER SORT OF SECONDARY
EFFECTS. BUT OFTEN THE FOCUS
SHOULD BE MORE BROAD. IT NEEDS
TO BE ON TARGET DEMOGRAPHIC
GROUP OR INDUSTRY SECTOR, OR IT
MIGHT BE THE INTENT MIGHT BE
TOO, FOR EXAMPLE, IMPROVED
ECONOMIC CONDITIONS IN CERTAIN
GEOGRAPHICAL AREAS. SO UH, IT'S
IMPORTANT TO ASK WHETHER OR NOT
THE FOCUS OF THE STUDY IS REALLY
AIMED AT THE CORRECT KIND OF
TARGET POPULATION. AND THEN IT'S
IMPORTANT THAT THAT STUDY IS
USING ESSENTIALLY A CONTROL
GROUP OR COMPARISON GROUP TO
HELP TO KIND OF REALLY
RIGOROUSLY DETERMINE WHETHER OR
NOT THE OUTCOMES AMONG THAT
TARGET POPULATION, UH ARE DUE TO
THE TAX EXPENDITURE OR WOULD
HAVE HAPPENED ANYWAY. AND SO
AGAIN, UH, YOU KNOW, A WAY OF
DOING THAT IS COMPARING TAX
EXPENDITURE RECIPIENTS TO A
SIMILAR GROUP OF INDIVIDUALS OR
BUSINESSES THAT DIDN'T RECEIVE
THE TAX EXPENDITURE. AND SO
THERE'S A FEW WAYS THAT THAT CAN
KIND OF BE SET UP. MAYBE THE
GOLD STANDARD IS THAT THE TAX
EXPENDITURE IS RANDOMLY THOUGHT
RANDOMLY ASSIGNED AMONG
BUSINESSES OR INDIVIDUALS, AND
THAT MIGHT BE THROUGH A LOTTERY
OR SOMETHING ELSE. THAT'S THAT'S
PRETTY RARE. UM THERE WAS AT
LEAST ONE INSTANCE OF THIS THAT
WE HAD MAYBE KIND OF BY
HAPPENSTANCE IN THE FILM TAX
CREDIT EARLY ON WHERE THAT DID
ALLOW US TO DO SOMEWHAT MORE
RIGOROUS EVALUATION OF SOME OF
THOSE OUTCOMES, BUT IT'S PRETTY
RARE THAT WE ACTUALLY HAVE SORT
OF A LOTTERY OR RANDOM, RANDOM
ASSIGNMENT OF TAX EXPENDITURES.
KIND OF THE NEXT LEVEL DOWN OUR
WHAT'S SOMETIMES REFERRED TO AS
AS NATURAL EXPERIENCE. JUST
INTERRUPT FOR ONE SECOND. COULD
YOU GO INTO THAT A LITTLE BIT
MORE ABOUT THE FILM, TAX CREDIT
AND THAT THERE WAS A RANDOM YEAH
. SO YEAH. SO EARLY ON, SO WE
DISCUSSED THE SO WE, UH WE HAD A
SEXUALLY REQUIRED EVALUATION OF
THE FILM TAX CREDIT BACK IN
2014. UH AND WE DISCUSSED HOW
EARLY ON, UM, I BELIEVE THE
PROGRAM WAS ESSENTIALLY
OVERSUBSCRIBED AND THERE WAS NO
KIND OF DICTATED MECHANISM FOR,
UM ALLOCATING THE CREDITS AMONG
THE FOLKS WHO HAD APPLIED FOR
IT. AND SO IT WAS BASICALLY
AWARDED THROUGH A LOTTERY, BUT
WE WERE ABLE TO RECORD
INFORMATION. ABOUT THE PEOPLE
WHO APPLY BUT DIDN'T RECEIVE.
CREDITS UNDER THE LOTTERY, AND
THIS ALLOWED US TO BECAUSE WE
HAD THIS RANDOM ASSIGNMENT.
THERE'S A LOT OF US TO, YOU
KNOW, BASICALLY KIND OF ASSUME
THAT RECIPIENTS AND NON
RECIPIENTS WERE PRETTY SIMILAR,
UH, AND ONE OF THE THINGS THAT
WE USE THIS DATA TO LOOK AT WAS
ESSENTIALLY AMONG AH!
PRODUCTIONS THAT APPLIED FOR THE
CREDIT BUT LOST IN THE LOTTERY.
HOW MANY OF THEM STILL FILMED
HERE? AND WE FOUND THAT IT WAS
ABOUT A THIRD AND SO THAT
ALLOWED US TO PUT, YOU KNOW ONE
ESTIMATE ON THIS KIND OF
QUESTION OF THE WINDFALL BENEFIT
IN THE FILM TAX PROGRAM BEING
THAT UH, YOU KNOW, IN THAT CASE
THAT IT LOOKED LIKE MAYBE A
THIRD OF THOSE PRODUCTIONS WOULD
HAVE BEEN FILMED HERE, EVEN IF
THE TAX CREDIT YOU KNOW, DIDN'T
PROVIDE THEM ANY BENEFIT. UM SO
I'M SORRY. SO UM, SO KIND OF
FIRST LEVEL IS KIND OF RANDOM
ASSIGNMENT NEXT IS WHAT'S
SOMETIMES REFERRED TO AS NATURAL
EXPERIMENTS. AH AH AH, AND THIS
CAN BE SOMETHING WHERE, FOR
EXAMPLE, SOME ASPECT OF THE
PROGRAM'S DESIGN CREATES, UM,
SORT OF AN ARTIFICIAL THRESHOLD
THAT THAT BREAKS UP. WHO, UH,
THE GROUP OF PEOPLE WHO RECEIVED
THE TAX BENEFIT AND THE ONES
THAT DON'T SO AN EXAMPLE MIGHT
BE A VERY HARD INCOME
ELIGIBILITY THRESHOLD. UM, WHERE
FOLKS AH, ONLY UP TO $50,000 ARE
ELIGIBLE FOR A TAX CREDIT. BUT
WE WOULD THINK THAT SOMEONE YOU
KNOW, MAKING $50,000 AND SOMEONE
MAKING $50,001 ARE PRETTY
SIMILAR, AND SO WE CAN COMPARE
THE OUTCOMES ACROSS THOSE TWO
GROUPS AND THAT THAT'S AN
EXAMPLE OF KIND OF THIS NATURAL
EXPERIMENT. SETUP THAT, UM, YOU
KNOW, ACADEMIC RESEARCHERS MIGHT
BE LOOKING FOR THOSE KINDS OF
OPPORTUNITIES TO EVALUATE. ON
THE FINAL KIND OF NEXT LEVEL ARE
VARIOUS KIND OF STATISTICAL
METHODS THAT, UH YOU KNOW, TRY
TO TAKE A COMPARISON GROUP. THAT
HASN'T BEEN RANDOMLY ASSIGNED.
WE DON'T HAVE ONE OF THESE
NATURAL EXPERIMENTS, BUT WE TRY
TO USE KIND OF OTHER TECHNIQUES
TO MAKE THAT COMPARISON GROUP
LOOK MORE SIMILAR TO THE FOLKS
WHO RECEIVED THE TAX
EXPENDITURES TO PROVIDE THAT
KIND OF, YOU KNOW, COMPARISON.
UH SO THOSE ARE, YOU KNOW, KIND
OF SOME IDEAS OF THINGS TO BE
LOOKING FOR, YOU KNOW? THERE
WOULD BE INCORPORATED IN WHAT WE
MIGHT CONSIDER A GOOD EVALUATION
. UM BUT IT IS IMPORTANT TO KEEP
IN MIND THAT YOU KNOW. NO SINGLE
STUDY ON A TAX EXPENDITURE IS
GOING TO BE AUTHORITATIVE. EVEN
STUDIES THAT INCORPORATE THE
BEST OF THESE ELEMENTS THAT I
MENTIONED, UM THEY STILL HAVE
LIMITATIONS. AND SO YOU KNOW,
ONE STUDY IS BETTER THAN HAVING
NOTHING. BUT IT'S EVEN BETTER TO
HAVE KIND OF A CONSENSUS AMONG
OF A LITERATURE, UM, TO REALLY
GET A FULL SENSE OF THE
EFFECTIVENESS OF A TAX
EXPENDITURE, AND IT'S ALSO
IMPORTANT TO KEEP IN MIND THAT
THERE ARE SOME IMPORTANT
QUESTIONS ABOUT TAX EXPENDITURES
THAT THAT FRANKLY WITH NO AMOUNT
OF RESEARCH WILL BE ABLE TO
ANSWER. DEFINITIVELY, UM. AND
REGARDLESS OF HOW MUCH DATA WE
HAVE, OR ANYTHING ELSE, JUST
SIMPLY BECAUSE OF, UH SOME OF
THE LIMITATIONS INHERENT AND
SOME OF THESE TECHNIQUES WE TRY
TO USE TO ESTIMATE THESE
EFFECTS. UM SO WITH THAT I'LL BE
HAPPY TO TAKE ANY QUESTIONS AT
THE APPROPRIATE TIME. THANK YOU
VERY MUCH. MR EULER. OUR NEXT
PANELIST IS DARRIN SCHENCK SKI
PROFESSOR OF LAW AT UC DAVIS.
WE'VE REQUESTED THAT THE
PROFESSOR PROVIDE AN ACADEMIC
EVALUATION OF TAX EXPENDITURES
EXPENDITURES WHENEVER YOU'RE
READY. THANK YOU. IT'S GREAT TO
BE HERE. IT'S AN HONOR TO BE
HERE. UM YOU HAVE MY TESTIMONY,
WHICH HAS LIVE LINKS TO VARIOUS
SOURCES, BUT I BROUGHT A COUPLE
OF HARD COPIES AND DISTRIBUTE
THEM ON MADAM CHAIR. OKAY SO
FIRST, I'D LIKE TO START WITH MY
WORKING DEFINITION OF A TAX
EXPENDITURE. IT'S A LITTLE BIT
DIFFERENT FROM THAT OF THE
DEPARTMENT OF FINANCE. I
CONSIDER A TAX EXPENDITURE
ATTACKS RULE THAT IS DIFFERENT
FROM THE RULE THAT WOULD BE
PRESCRIBED BY THE PRINCIPLES
UNDERLYING THE TAX ISSUE. UM AND
TYPICALLY TO ADVANCE SOME POLICY
GOALS. THIS IS A LITTLE BIT
NARROWER THAN THAT OF THE
DEPARTMENT OF FINANCE, AND
THAT'S FINE. I THINK IT'S BETTER
THAT THEY GIVE YOU MORE
INFORMATION RATHER THAN LESS.
BUT I WANT TO EXPLAIN WHERE I'M
COMING FROM. I PUT TOGETHER NINE
GENERAL PRINCIPLES, RULES OF
THUMB THAT I WOULD PROPOSE FOR
YOU TO THINK ABOUT IN CONNECTION
WITH TAX EXPENDITURES. A BUNCH
OF THEM HAVE BEEN REVIEWED
ALREADY, SO I WILL GO QUICKLY
OVER THOSE AND THOSE THAT ADD
SOMETHING DIFFERENT. I WILL GO A
LITTLE BIT MORE SLOWLY ABOUT
FIRST, UM BE SKEPTICAL ABOUT TAX
EXPENDITURES, AND FOR MANY
REASONS, THE FIRST ONE IS THAT
ALL TAX EXPENDITURES NARROW THE
TAX BASE. AND THAT ALONE SHOULD
BE AVOIDED. CALIFORNIA'S
GOVERNED BY A BALANCED BUDGET
RULE. SO IF YOU HAVE A TAX
EXPENDITURE, AND YOU WANT TO
RAISE A CERTAIN AMOUNT OF MONEY,
YOU'RE GOING TO HAVE TO RAISE
TAX RATES SOMEPLACE ELSE. THE
RULE OF THUMB IN PUBLIC FINANCE
ECONOMICS IS THE HIGHER THE TAX
RATE, THE MORE THE ECONOMIC
DISTORTION TO GET INTUITION
THINK ABOUT THE THINGS YOU WOULD
DO TO AVOID A 20% TAX AND THINKS
OF WHAT I THINK ABOUT YOUR DUE
TO AVOID A 5% TAX. SO TO THE
EXTENT YOU COULD HAVE A BROADER
BASE, YOU COULD HAVE LOWER RATES
AND LESS ECONOMIC DISTORTION.
THERE WAS ALSO GROUND WORLD TOO
STRONG CONSENSUS THAT NARROW TAX
INCENTIVES NOT ACCOMPLISH MUCH.
WE'VE TALKED ABOUT THAT, AND WE
CAN TALK MORE ABOUT IT AS WELL.
LOTS OF ACADEMIC LITERATURE
ABOUT IT. THERE ARE SOME
EXCEPTIONS. PEOPLE WILL COME AND
ARGUE THAT YOU SHOULD IMPROVE
NEW TAX EXPENDITURES BECAUSE
THEY'RE THE EXCEPTION AND WHAT I
WOULD ENCOURAGE YOU TO THINK
ABOUT IS THEY'RE PROBABLY NOT
THE EXCEPTION. UM I'D ALSO WANT
TO MAKE A POINT THAT THERE'S AN
ANALYTIC CONNECTION BETWEEN TAX
INCENTIVES AND THE INTEGRITY OF
THE OVERALL TAX SYSTEM. TAX
INCENTIVES ARE ONLY POWERFUL IF
THEY ALLOW PEOPLE TO AVOID TAXES
THEY WOULD OTHERWISE HAVE TO
PAY. THE TAX SYSTEM IS ALREADY
POROUS THAN TAX INCENTIVES
AREN'T GOING TO BE VERY POWERFUL
AND INCENTIVIZING THE BEHAVIOR
THAT YOU WANT. GROUND RULE
THREE. BE CAREFUL WHEN CREATING
NEW TAX EXPENDITURES RIGHT AS
WE'VE TALKED ABOUT, EASY TO
CREATE HARD TO EVALUATE, ALMOST
IMPOSSIBLE TO GET RID OF, SO BE
HARD. SO AGAIN. BE SKEPTICAL. UM
FOURTH MORE CONCEPTUAL POINT.
BASED ON HOW I THINK ABOUT TAX
EXPENDITURES, NOT ALL TAX
EXPENDITURES ON THESE VARIOUS
LISTS, WHICH AGAIN ARE TERRIFIC
ARE REALLY TAX EXPENDITURES. SO,
FOR EXAMPLE, THE DEPARTMENT OF
FINANCE AND THE CTF A CONSIDERS
THE MANUFACTURING AND RESEARCH
AND DEVELOPMENT EQUIPMENT
EXEMPTION TO BE A SALES TAX
EXPENDITURE, BECAUSE PEOPLE ARE
PAYING LESS SALES TAX FOR THESE
PURCHASES. I WOULD NOT CONSIDER
THAT A SALES TAX EXPENDITURE
BECAUSE THE SALES TAX IS MEANT
TO TAX ONLY FINAL CONSUMPTION,
NOT INTERMEDIATE PURCHASES OF
BUSINESS ASSETS, AND SO THAT
ACTUALLY IS A TAX THAT IS
APPROPRIATE UNDER SALES TAX
PRINCIPLE. NOTE THAT AND THIS IS
ACTUALLY JUMPS AHEAD TO POINT
NUMBER SIX. THERE ARE ALSO MAJOR
TAX EXPENDITURES, NOT ON THE
LIST. SO FOR EXAMPLE, IF YOU
WANT TO TAX ALL FINAL
CONSUMPTION, YOU SHOULD TAX ALL
DIGITAL GOODS AS WELL. THAT HAS
BEEN THE TREND IN OTHER STATES
AS WELL. UM, SO IF YOU BUY A
PHYSICAL BOOK, YOU'RE TAXED. IF
YOU DOWNLOAD AN E BOOK, YOU'RE
TAXED TO THE EXTENT OURSELVES.
TAX DOES NOT TAX DIGITAL GOODS.
THAT IS A HOLE IN THE SALES TAX
BASED ON SALES TAX PRINCIPLE,
AND I WOULD CONSIDER THAT A
SALES TAX EXPENDITURE. I'M 50
POINT. NOT ALL TAX EXPENDITURES
ARE PROBLEMATIC. SO WE'VE TALKED
ABOUT THE EARNED INCOME TAX
CREDIT, CLEARLY GIVING A
REFUNDABLE CREDIT TO THE WORKING
POOR IS NOT PART OF THE INCOME
TAX IN TERMS OF WHAT THE INCOME
TAX IS TRYING TO ACHIEVE. ON THE
OTHER HAND, THE EITC I THINK IS
A WELL ATTESTED AND AN EFFECTIVE
WAY OF ALLEVIATING POVERTY. UM
TO THE EXTENT YOU WANT TO HELP
THE WORKING POOR, YOU NEED TO
KNOW WHO THEY ARE. THE INCOME
TAX SYSTEM IS WHAT COLLECTS THAT
INFORMATION TO ADMINISTERING
THAT INFORMATION THROUGH THE TAX
CODE MAKES A LOT OF SENSE. AND
SO IT'S A TAX EXPENDITURE. BUT I
WOULD SAY IT'S A DIFFERENT KIND
OF TAX EXPENDITURE SHOULD STILL
BE EVALUATED ON ITS
CONSEQUENCES. BACK TO NUMBER SIX
THERE. MAJOR TAXES FINISHES NOT
ON THE LIST, SO THE LARGEST
SINGLE CORPORATE TAX EXPENDITURE
ABOUT FIVE BILLION PROTECTED BY
THE DEPARTMENT OF FINANCE IN
2023 2024. IS THE INCOME LOST
BECAUSE CALIFORNIA DOES NOT DO
VERY MUCH TO COMBAT THE SHIFTING
OF INCOME OUT OF THE U. S AND
CALIFORNIA TAX BASES BY LARGE
MULTINATIONAL CORPORATIONS.
THROUGH A RIVETING PROVISION
KNOWN AS THE WATER'S EDGE
ELECTION. YOU WANT TO HEAR MORE
ABOUT IT? I CAN TELL YOU MORE
ABOUT IT. UM SO SINCE THIS IS A
DEVIATION, UM FROM CORPORATE
INCOME TAX PRINCIPLE. THERE'S NO
REASON TO EXEMPT INCOME IF IT
SHIFTED ABROAD. IT IS PROPERLY
LISTED ON THE LIST OF TAX
EXPENDITURES. ON THE OTHER HAND
, WHAT IS NOT ON THE LIST IS
THAT THE FEDERAL CORPORATE TAX
NOW CONTAINS AT LEAST TWO
PROVISIONS, INCLUDING ONE PUT
INTO PLACE BY THE TRUMP
ADMINISTRATION MEANT TO COMBAT
INCOME STRIPPING. THAT PROVISION
IS KNOWN THE GLOW AS THE GLOBAL
INTANGIBLE, LOW TAX INCOME
PROVISION GUILTY. HE SPENT A LOT
MORE TIME WORKING ON THE ACRONYM
BUT ON SOME OF THE MECHANICS UM,
ALSO, UM, AS PART OF THE
INFLATION REDUCTION ACT, THERE'S
THE CORPORATE ALTERNATIVE
MINIMUM TAX AGAIN. THAT WAS JUST
PAST MEANT. TO BE ELABORATE ON
TOP OF GUILTY TO COMBAT INCOME
STRIPPING THOSE TWO PROVISIONS
ARE NOT CONFORMED TO BUY
CALIFORNIA, AND THEY'RE ALSO NOT
ON THE LIST. NOW PRESUMABLY,
THEY WOULD BRING BACK SOME OF
THAT SAME $5 BILLION THAT
REVOKING THE WATER'S EDGE
ELECTION WOULD BRING BACK BUT I
JUST WANTED TO POINT OUT THAT
THOSE PROVISIONS ARE RELATIVELY
LOW HANGING FRUIT YOU CONFORM TO
THE FEDERAL RULE. AND THEY'RE
NOT ON THE LIST. OKAY 0.7
CONSIDER INTERACTIONS WITH THE
FEDERAL SYSTEM AND OTHER
IMPORTANT POLICIES. SO TAX
EXPENDITURES DON'T EXIST IN A
VACUUM. CONSIDER THE HOME
MORTGAGE INTEREST DEDUCTION. AS
YOU KNOW, THERE WAS A SIMILAR
REDUCTION AT THE FEDERAL LEVEL.
UM SO YOU, YOU KNOW, AND THERE'S
A LOT OF CHARACTER THAT SUGGESTS
THAT THAT IS NOT A GREAT TAX
EXPENDITURE. BUT LET'S ASSUME
YOU THINK IT IS A REASONABLY
GOOD TAX EXPENDITURE. THE
FEDERAL TAX BASE ON THE FEDERAL
TAX RATES ARE MUCH HIGHER THAN
CALIFORNIA'S TAX RATES. AND SO
TO THE EXTENT THAT THE HOME
MARKET INTEREST REDUCTION IS A
TAX EXPENDITURE AT THE FEDERAL
LEVEL, IT IS DOING WHATEVER IT'S
DOING TO ENCOURAGE HOME
OWNERSHIP. AND SO WHAT YOU HAVE
TO THINK ABOUT FROM THE
CALIFORNIA PERSPECTIVE IS THE
ADDED INCREMENT OF EXAMPLE OF
EXPENDITURE FROM THE CALIFORNIA
PERSONAL INCOME TAX. ACTUALLY
DOING ANYTHING THAT THE FEDERAL
PROVISIONS ISN'T ALREADY DOING
AND WHETHER THAT INCREMENTS OF
CALIFORNIA INCOME LOST IS WORTH
IT. GIVEN THAT CALIFORNIA HAS A
BALANCED BUDGET RULE, AND THE
FEDERAL GOVERNMENT DOESN'T UM,
PRINCIPLE NUMBER EIGHT. CONSIDER
DISTRIBUTIONAL EFFECTS. WE'VE
TALKED ABOUT THIS A LITTLE THAT
I KNOW THAT KAYLA KIDS AND IS
GOING TO TALK ABOUT IT NEXT. BUT
A LOT OF TAX EXPENDITURES, UM,
ARE UPSIDE DOWN IN TERMS OF
THEIR DISTRIBUTIVE EFFECTS IN
TERMS OF WHO GETS IT ON THE
INCOME SCALE. UM IF THEY HAD TO
BE PASSED OR THE REGULAR
BUDGETARY PROCESS, I DOUBT THEY
WOULD. UM AND SO, UM, THOSE
SHOULD BE CONSIDERED RIGHT. SO
THE CLASSIC CRITIQUE OF TAX
EXPENDITURES IS THAT THEY'RE
HIDDEN SPENDING AND THEY'RE
HIDDEN SPENDING. THAT WOULDN'T
STAND UP TO SCRUTINY OF ACTUALLY
SCRUTINIZED FINAL. UM PRINCIPAL
CONSIDER CREATIVE WAYS TO CAP
EXPENDITURES. SO ELIMINATING OR
EVEN CAPPING A PARTICULAR TAX
EXPENDITURE CAN BE. I BELIEVE
POLITICALLY CHALLENGING. THAT'S
YOUR JOB, BUT I BELIEVE THAT
THAT'S TRUE. UM, AND AS A POLICY
MATTER, ONE MIGHT REASONABLY
BELIEVE THAT MANY EXPENDITURES
DO SOME GOOD WHILE WORRYING
ABOUT THEIR OVERALL COST. BUT SO
IT'S NOT A TRADE OFF BETWEEN
HAVING IT AND NOT HAVING IT. YOU
COULD COME UP WITH CREATIVE WAYS
TO CONTROL COSTS WHILE
PRESERVING THE EXPENDITURES WILL
GIVE YOU ONE EXAMPLE. CALIFORNIA
HAS A CORPORATE MINIMUM TAX THAT
APPROPRIATELY DOES NOT PERMIT
THE USE OF MANY TAX CREDITS,
RIGHT. THE IDEA IS, YOU SHOULD
BARELY SO A CERTAIN AMOUNT. NO
MATTER HOW MUCH CREDITS REDUCE
YOUR TAX BURDEN. HOWEVER
CALIFORNIA'S CORPORATE MINIMUM
TAX PERMITS ACTUALLY THE BIGGEST
TAX CREDITS AGAINST IT RIGHT,
INCLUDING, UM, THE R AND D
CREDIT. RIGHT SO CALIFORNIA
CORPORATE MINIMUM TAX DOESN'T DO
VERY MUCH BECAUSE IT'S AT LEAST
I'LL LET THE F T B. UM YOU KNOW,
TELL ME THAT I'M WRONG, BUT TO
THE EXTENT THAT YOU CAN USE THE
R AND D CREDIT AGAINST THAT, ON
THE MINIMUM TAX, IT'S NOT MUCH
OF A BACKSTOP BUT DOESN'T HAVE
TO BE THAT WAY. RIGHT. YOU CAN
MAKE THE CALIFORNIA CORPORATE
MINIMUM TAX A MINIMUM TAX. FOR
WHAT? YOU CAN'T TAKE ANY CREDIT.
OR THERE'S ANOTHER STEP YOU
MIGHT TAKE. ONE MIGHT, UM,
FORBID THE USE OF THE R AND D
AND OTHER CREDITS AGAINST THE
CORPORATE MINIMUM TAX, BUT ONLY
FOR TAXPAYERS THAT HAVE TAKEN
THE WATER'S EDGE ELECTION AND
THIS WAY THE STATE WOULD BE
STAYING TOO PROFITABLE
BUSINESSES. WE ALL SUPPORT YOUR
GROWTH. VERY GENEROUSLY.
CALIFORNIA'S R AND D CREDIT IS
VERY GENEROUS COMPARED TO OTHER
STATES. WE CAN TALK ABOUT THAT.
AND I WILL ALSO TELL YOU THAT AS
FAR AS TAX CREDITS GO THE R AND
D CREDIT IS, YOU KNOW THE ONE OF
THE LESSER BAD ONES RIGHT? SO
IT'S POLICY. BONIFIED ARE BETTER
THAN AVERAGE, SO MAINTAINING THE
R AND D CREDIT HAS SOME
JUSTIFICATION. BUT WHAT
CALIFORNIA WOULD BE SAYING BY
TYING IT TO THE WATER'S EDGE
ELECTION WOULD BE SAYING
CORPORATION YOU WE ALL SUPPORT
THE GROWTH GENEROUSLY, BUT WHEN
YOU MAKE MONEY, YOU NEED TO MAKE
SURE TO SHARE A MINIMUM AMOUNT.
I E. THROUGH THE CORPORATE
MINIMUM TAX OR ADOPT A
METHODOLOGY OF CALCULATING YOUR
CORPORATE INCOME TAX LIABILITY
THAT DEMONSTRATES THAT YOU ARE
NOT INAPPROPRIATELY SHIFTING
PROFITS ABROAD. SO YOU HAVE A
CHOICE, RIGHT? PAY THE MINIMUM.
OR SHOW THAT THIS IS REALLY HOW
MUCH YOU OWE BECAUSE YOU ARE
REVEALING THAT YOU'RE NOT
SHIFTING INCOME ABROAD THROUGH
ADOPTING WORLDWIDE COMBINED
REPORTING. AND SO THAT IS IT AS
I AM. I WANT TO EMPHASIZE AGAIN
. I AM AT YOUR DISPOSAL TO
ANSWER QUESTIONS NOW OR IN THE
FUTURE. THANK YOU, PROFESSOR. WE
WILL NOW HEAR FROM KAYLA KITSON
, SENIOR POLICY ANALYST WITH THE
CALIFORNIA BUDGET AND POLICY
CENTER. WE HAVE ASKED THE CENTER
TO GIVE THEIR PERSPECTIVE ON TAX
EXPENDITURES. PLEASE BEGIN WHEN
YOU'RE READY. THANK YOU VERY
MUCH. MADAM CHAIR MEMBERS OF THE
COMMITTEE. KAYLA KITSON, SENIOR
POLICY ANALYST AT THE CALIFORNIA
BUDGET AND POLICY CENTER, OR
ORGANIZATION, ENGAGES IN FISCAL
AND POLICY ANALYSIS, AS WELL AS
PUBLIC EDUCATION WITH THE GOAL
OF IMPROVING THE ECONOMIC AND
SOCIAL WELL BEING OF
CALIFORNIANS WITH LOW AND MIDDLE
INCOMES. I APPRECIATE THE
COMMITTEE HOLDING THIS HEARING
TODAY AND THE OPPORTUNITY TO
SPEAK I'LL START BY OUTLINING
THREE MAIN POINTS. FIRST MUCH OF
THE MORE THAN $70 BILLION AN
ESTIMATED PERSONAL AND CORPORATE
INCOME TAX EXPENDITURES GOES TO
TAX BREAKS THAT
DISPROPORTIONATELY BENEFIT
WEALTHY FAMILIES AND PROFITABLE
CORPORATIONS. MANY OF THESE TAX
EXPENDITURES PERPETUATE EXISTING
ECONOMIC AND RACIAL INEQUITIES.
SECOND THE REVENUE LOST TO TAX
EXPENDITURES REPRESENTS DOLLARS
THAT ARE NOT BEING INVESTED IN
OTHER CRITICAL PUBLIC SERVICES
LIKE EDUCATION, HEALTH CARE,
CHILD CARE AND AFFORDABLE
HOUSING. YET THEIR SPENDING
THROUGH THE TAX CODE IS NOT
REGULARLY CONSIDERED AS PART OF
THE BUDGET PROCESS, AND IT'S
HARDER TO SCALE BACK THEN DIRECT
SPENDING. FINALLY CALIFORNIA CAN
AND SHOULD IMPROVE THE OVERSIGHT
AND EVALUATION OF TAX
EXPENDITURES AND THEN USE THAT
INFORMATION TO DETERMINE WHETHER
TO MAINTAIN REFORM OR ELIMINATE
GIVEN EXPENDITURE. SCALING BACK
TAX BREAKS THAT ARE INEQUITABLE
OR INEFFECTIVE, WOULD FREE UP
REVENUE FOR OTHER INVESTMENTS TO
IMPROVE THE LIVES OF
CALIFORNIANS WHO RECEIVE LITTLE
BENEFIT FROM TAX BREAKS. NOW I
WANT TO RETURN TO THE ECONOMIC
AND RACIAL EQUITY IMPLICATIONS
OF TAX EXPENDITURES. MANY COSTLY
PERSONAL INCOME TAX EXPENDITURES
PRIMARILY BENEFIT CALIFORNIANS
WITH HIGHER INCOMES. THE COST OF
THESE INEQUITABLE TAX
EXPENDITURES IS FAR LARGER THAN
THE COST OF TAX EXPENDITURES
THAT PRIMARILY BENEFIT
CALIFORNIA MEANS WITH LOW AND
MIDDLE INCOMES. FOR EXAMPLE, THE
FOUR LARGEST ITEMIZED DEDUCTIONS
FOR INDIVIDUAL TAXPAYERS WILL
COST THE STATE NEARLY $12
BILLION IN FISCAL YEAR 2023 24.
FOR ALL OF THESE DEDUCTIONS,
MORE THAN THREE QUARTERS OF THE
BENEFITS GOES TO TAX FILERS WITH
ADJUSTED GROSS INCOME ABOVE
$100,000, EVEN THOUGH THEY
REPRESENT ONLY ABOUT 1/5 OF
FILERS OVERALL. IN COMPARISON,
THE STATE WILL SPEND LESS THAN
$1.3 BILLION ON THE STATE'S
THREE REFUNDABLE TAX CREDITS
EARNED INCOME TAX CREDIT, THE
YOUNG CHILD TAX CREDIT AND THE
NEW FOSTER YOUTH CREDIT. THESE
ARE THE ONLY TEXT PERSONAL
INCOME TAX EXPENDITURES THAT
BENEFIT FAMILIES WITH THE LOWEST
INCOMES. THESE FAMILIES CANNOT
FULLY BENEFIT FROM DEDUCTIONS OR
NON REFUNDABLE CREDITS, SINCE
THEY HAVE LITTLE TO NO INCOME
TAX LIABILITY, BUT THEY DO PAY
OTHER STATE AND LOCAL TAXES.
MANY TAX EXPENDITURES ALSO
PERPETUATE RACIAL INEQUITIES. WE
KNOW THAT BLACK, LATIN X AND
OTHER CALIFORNIANS OF COLOR ARE
LESS LIKELY TO HAVE HIGH INCOMES
DUE TO PAST AND PRESIDENT RACISM
AND DISCRIMINATION. THIS MEANS
THAT THEY ARE LESS LIKELY TO
BENEFIT FROM TAX BREAKS THAT
DISPROPORTIONATELY BENEFIT
HIGHER INCOME FAMILIES, AND THIS
EXACERBATES RACIAL INCOME AND
WEALTH INEQUALITY. ADDITIONALLY
SOME TAX BREAKS SPECIFICALLY
BENEFIT FAMILIES WITH WEALTH
HOLDINGS AND BECAUSE MANY
CALIFORNIANS HAVE COLOR HAVE
BEEN HISTORICALLY EXCLUDED FROM
WEALTH BUILDING OPPORTUNITIES.
THESE TAX EXPENDITURES WIDENED
ALREADY LARGE RACIAL WEALTH
GAPS. A RECENT WORKING PAPER
FROM THE U. S. TREASURY
DEPARTMENT'S OFFICE OF TAX
ANALYSIS PROVIDES MORE EVIDENCE
SHOWING THAT SOME OF THE MOST
COSTLY TAX EXPENDITURES DO
OVERWHELMINGLY BENEFIT WHITE
FAMILIES. THE AUTHORS EXAMINED
EIGHT DIFFERENT FEDERAL TAX
EXPENDITURES, MANY OF WHICH ALSO
EXISTS IN CALIFORNIA'S TAX CODE.
THEY FOUND THAT 91% OF THE
BENEFITS OF THE DEDUCTION FOR
CHARITABLE CONTRIBUTIONS GOES TO
WHITE FAMILIES, AS DOES 84% OF
THE BENEFIT FOR THE MORTGAGE
INTEREST DEDUCTION. IN CONTRAST
, THEY FOUND THAT REFUNDABLE TAX
CREDITS, INCLUDING THE EARNED
INCOME TAX CREDIT AND THE CHILD
TAX CREDIT, WHERE THE ONLY
EXPENDITURES THEY CONSIDER THAT
DO NOT DISPROPORTIONATELY
BENEFIT WHITE FAMILIES. YET AS I
STATED EARLIER, THESE REFUNDABLE
TAX CREDITS REPRESENT A VERY
SMALL SHARE OF THE OVERALL
REVENUE LOSS, UM, THAT THE STATE
WAS IS TO TAX EXPENDITURES. THE
SECOND MAIN CONCERN ABOUT TAX
EXPENDITURES IS THAT ALTHOUGH
THEY DO TAKE REVENUES OFF THE
TABLE FOR OTHER SERVICES AND
INVESTMENTS, THEY RECEIVE
PREFERENTIAL TREATMENT COMPARED
WITH DIRECT SPENDING. AND AS
WE'VE HEARD FROM OTHER PANELISTS
, TAX EXPENDITURES DON'T NEED TO
BE AUTHORIZED EACH YEAR THROUGH
THE BUDGET PROCESS, AS DOES
DIRECT SPENDING, WHICH MEANS
THAT THEY'RE SUBJECT TO LESS
SCRUTINY AND OFTEN CAN CONTINUE
FROM YEAR TO YEAR WITHOUT
DEBATE. ADDITIONALLY A TWO
THIRDS VOTE IS CONSTITUTIONALLY
REQUIRED TO REDUCE TAX
EXPENDITURES. WELL DIRECT
SPENDING CAN BE CUT WITH A
SIMPLE MAJORITY. THIS UNEQUAL
TREATMENT OF TAX EXPENDITURES
AND DIRECT SPENDING MEANS THAT
SPENDING ON THINGS LIKE CASH AID
FOR FAMILIES LIVING IN POVERTY,
SUBSIDIZED CHILDCARE AND
AFFORDABLE HOUSING IS MORE
VULNERABLE TO CUTS THAN TAX
BREAKS FOR PROFITABLE
CORPORATIONS, FOR EXAMPLE. AND
ON THE SUBJECT OF CORPORATE TAX
EXPENDITURES. IT IS CONCERNING
THAT A LARGE SHARE OF THE
FOREGONE REVENUES MAY PROVIDE
WINDFALL BENEFITS TO HIGHLY
PROFITABLE CORPORATIONS. AND FOR
MANY OF THESE TAX BREAKS, AS
WE'VE HEARD BEFORE, THERE'S
MINIMAL OR MIXED EVIDENCE OF
THEIR COST EFFECTIVENESS. THE
CREATION AND EXPANSION OF
CORPORATE TAX BREAKS IS A LARGE
PART OF THE REASON THAT
CORPORATIONS PAY ABOUT HALF OF
WHAT THEY DID A GENERATION AGO
IN STATE TAXES AS A SHARE OF
THEIR CALIFORNIA INCOME. IF
CORPORATIONS HAD PAID THE SAME
SHARE OF THEIR INCOME AND STATE
TAXES IN 2020, AS THEY DID IN
1981 STATE REVENUES WOULD HAVE
BEEN, I WOULD HAVE BEEN ABOUT
$14.5 BILLION HIGHER AND FOR
CONTEXT. THIS IS MORE THAN THE
STATE SPENDS ON ITS TWO STATE
UNIVERSITY SYSTEMS AND STUDENT
AID COMBINED. I'LL END MY
COMMENTS BY LIFTING UP SOME KEY
RECOMMENDATIONS THAT THE CITY
THE COMMITTEE CAN CONSIDER TO
IMPROVE, IMPROVE THE OVERSIGHT
AND THE EQUITY OF TAX
EXPENDITURES. THE FEW CHARITABLE
TRUSTS FOUND THAT CALIFORNIA
TRAILS OTHER STATES IN
IMPLEMENTING BEST BEST PRACTICES
FOR TAX EXPENDITURE EVALUATION.
SEVERAL OF THEIR RECOMMENDED
PRACTICES COULD BE CONSIDERED BY
THE COMMITTEE. FOR INSTANCE,
STATE LEADERS COULD REQUIRE TAX
EXPENDITURES TO BE REGULARLY
EVALUATED BY A NONPARTISAN
ENTITY AND THEN REQUIRE
LEGISLATIVE HEARINGS TO CONSIDER
THE REASON THE FINDINGS OF THESE
EVALUATIONS. INSTITUTING SUNSET
DATES FOR TAX EXPENDITURES AND
COMBINATION WITH THESE
EVALUATION REQUIREMENTS IS ALSO
A STRATEGY TO ENSURE MORE
REGULARLY, MORE REGULAR REVIEW
AND DIALOGUE. AND I DO WANT TO
COMMEND THE CHAIR FOR ENFORCING
A RULE AND, UH, REQUIRING SUNSET
DATES FOR NEW TAX EXPENDITURE
PROPOSALS. STATE LEADERS COULD
ALSO CONSIDER PUTTING SUNSET
DATES ON EXISTING TAX
EXPENDITURES TO ENSURE THAT THEY
ARE REVIEWED ON A TIMELY BASIS.
AND FINALLY, I WOULD RECOMMEND
THE POLICYMAKERS ALSO REGULARLY
CONSIDER BOTH THE RACIAL AND
ECONOMIC EQUITY EFFECTS OF TAX
EXPENDITURES AND ALSO
INCORPORATE THAT INFORMATION
INTO DECISIONS ON WHETHER TO
CONTINUE MODIFY OR ELIMINATE
EXISTING TAX EXPENDITURES AND
WHETHER TO CREATE NEW TAX
EXPENDITURES. TAKING A HARD LOOK
AT TAX EXPENDITURES IS CRITICAL
BECAUSE AGAIN EVERY DOLLAR THAT
THE STATE SPENDS ON INEQUITABLE
OR INEFFECTIVE TAX BREAKS IS A
DOLLAR THAT COULD HAVE GONE TO
BETTER SUPPORT THE WELL BEING OF
OUR COMMUNITIES. THANK YOU SO
MUCH FOR HAVING ME AND I'M HAPPY
TO ANSWER QUESTIONS AFTER THE
PANELS DONE. THANK YOU. MISS
KITSON, MR GUNN. THANK YOU VERY
MUCH. MADAM CHAIR AND HELLO
COMMITTEE MEMBERS. PRESTON YOUNG
FROM THE CALIFORNIA CHAMBER OF
COMMERCE. THANK YOU FOR HAVING
ME HERE TODAY. IT'S NICE TO SEE
EVERYBODY AND BE BACK AT IT
AGAIN. MY GOAL TODAY IS TO JUST
SHARE A COUPLE OF COMMENTS FROM
AN EMPLOYMENT BASED PERSPECTIVE.
UM YOU KNOW, IT GOES WITHOUT
SAVING CALIFORNIA IS A DIFFICULT
PLACE TO DO BUSINESS. WE HAVE
THE HIGHEST STATE SALES AND USE
TAX RATE IN THE COUNTRY AT 7.25%
LOCAL GOVERNMENTS ARE PERMITTED
TO LEVY ADDITIONAL TAXES. ON TOP
OF THAT. WITH THE HIGHEST GAS
TAX RATE IN THE COUNTRY. WE HAVE
THE HIGHEST PERSONAL INCOME TAX
RATE IN THE COUNTRY IN
CALIFORNIA CORPORATE TAX RATE OF
8.84% IS THE HIGHEST IN THE
WESTERN UNITED STATES IN THE
SEVENTH HIGHEST IN THE COUNTRY.
SO THE REASON I PREFACE MY
COMMENTS THIS WAY IS NOT TO
COMPLAIN, BUT RATHER IT'S
IMPERATIVE THAT WE UNDERSTAND
THE LANDSCAPE WHERE AND WHEN
DISCUSSING TAX EXPENDITURES THAT
APPLY TO OUR STATE'S BUSINESSES.
ADDITIONALLY IT'S IMPORTANT TO
KEEP IN MIND THAT THE BUSINESS
TAX EXPENDITURES IN CALIFORNIA
ALL HAD SERIOUS REASONS FOR
COMING INTO EXISTENCE AND PRIOR
TO THE ENACTMENT. ALL OF THESE
TAX EXPENDITURES WERE CONSIDERED
DEBATED, WORKED ON DIRECTLY BY
THE LEGISLATURE, WHO THOUGHT
THERE WERE SERIOUS ENOUGH
REASONS TOWARD THEIR ENACTMENT.
SO WHEN WE TURN OUR ATTENTION TO
CALIFORNIA'S TAX EXPENDITURES
AND THEIR EFFECTIVENESS, I CAN
OFFER A FEW THOUGHTS TODAY.
FIRST TAX EXPENDITURES ALLOW
CALIFORNIA BUSINESSES TO HAVE
SOME CERTAINTY WHEN PLANNING FOR
THEIR FUTURE. OUR STATES
EMPLOYERS CAN AND HAVE DEALT
WITH A DIFFICULT BUSINESS
ENVIRONMENT IN CALIFORNIA. BUT
WHAT THEY CAN'T DEAL WITH IS AN
UNPREDICTABLE BUSINESS
ENVIRONMENT THAT DOESN'T ALLOW
FOR PLANNING, HIRING, EXPANSION
OR SUCCESS. ADDITIONALLY TAX
EXPENDITURES ENCOURAGE
BUSINESSES TO ENGAGE IN BEHAVIOR
THEY OTHERWISE WOULDN'T
PARTICIPATE IN BUT FOR THE
CREDITOR EXEMPTION FOR EXAMPLE,
WE'VE HEARD ABOUT IT A COUPLE OF
TIMES TODAY THE SALES AND USE
TAX EXEMPTION FOR MANUFACTURING
AND RESEARCH AND DEVELOPMENT
EQUIPMENT, WHICH WAS PUT INTO
PLACE IN ORDER TO REMEDY A
DOUBLE TAXATION ISSUE. PRIOR TO
THE EXEMPTION BUSINESSES. WE'RE
GETTING TAXED FOR THE EQUIPMENT
THEY BOUGHT TO PRODUCE A PRODUCT
AND THEN THEY WERE GETTING TAXED
FOR THE SELLING OF THE PRODUCT
BECAUSE BUSINESSES TO PRODUCE
PRODUCTS ELSEWHERE IN ORDER TO
AVOID THE DOUBLE TAXATION ISSUE.
ANOTHER EXAMPLE IS THE RESEARCH
AND DEVELOPMENT ACTIVITY IN THE
STATE OF CALIFORNIA, WHICH IS
ROBUST THANKS IN LARGE PART OF
THE R D TAX CREDIT. CALIFORNIA
COMPANIES PERFORMED MORE THAN
$144.5 BILLION WORTH OF R AND D
ACTIVITIES IN 2018, WHICH WAS
NEARLY FIVE TIMES AS MUCH AS THE
SECOND RING STATE FOR INDUSTRY
INVESTMENT IN R AND D. ALSO THIS
CREDIT NOT ONLY APPLIES TO
RESEARCH AND DEVELOPMENT
ACTIVITIES LIKE THE LASERS THAT
SCALES THINGS THAT GO INTO THE
DEVELOPMENT. BUT ALSO THE WAGES
PAID TO THOSE ENGAGED IN THE
RESEARCH OR DIRECTLY SUPERVISING
OR SUPPORTING THE RESEARCH
ACTIVITIES. JOBS IN THE SECTOR
OF SOME OF THE HIGHEST WAGES IN
THE STATE OF CALIFORNIA, AND
THAT'S THANKS IN LARGE PART TO
THIS CREDIT THE REASON WHY I
WANTED TO HIGHLIGHT THESE TWO
PARTICULAR TAX EXPENDITURES IS
BECAUSE THEY ARE GOOD EXAMPLES
OF HOW CALIFORNIA'S TAX
STRUCTURE DISCOURAGES PARTICULAR
ACTIVITY. BUT THE TAX
EXPENDITURES REMEDY THAT
SITUATION AND ACTUALLY ENCOURAGE
BUSINESS AND EMPLOYMENT GROWTH,
WHICH OTHERWISE WOULDN'T EXIST.
ALSO I THINK IT'S IMPORTANT TO
POINT OUT THAT BUSINESS TAX
EXPENDITURES MAKE UP A SMALL
PORTION OF THE FISCAL IMPACT
THAT EXPENDITURES AS A WHOLE
HAVE, UM STATE FROM A FEDERAL
PERSPECTIVE IN CALIFORNIA IS NOT
TOO FAR OFF WITH THIS ABOUT 90%
OF TAX EXPENDITURES APPLY TO
PERSONAL INCOME TAXES WILL 10%
APPLY TO BUSINESS. SO IN
CALIFORNIA, ACCORDING TO THE
DEPARTMENT OF FINANCE, PERSONAL
INCOME TAX EXPENDITURES REDUCED
GENERAL FUND REVENUES BY $65.5
BILLION IN 2022 2023. IN
COMPARISON, BUSINESS
EXPENDITURES FOR THE CORPORATION
TAX FOR AN ESTIMATED $8.7
BILLION REDUCTION OR THE SALES
AND USE TAX EXEMPTIONS. TOTAL
$12.8 BILLION CLOSING THESE
BUSINESS TAX EXPENDITURES ARE
ALL DESIGNED FOR A PURPOSE AND A
REASON IN THE LEGISLATURE
THOUGHT THERE WAS A SERIOUS
ENOUGH ISSUE TO PASS EACH ONE OF
THESE TAX EXPENDITURES. THE TAX
EXPENDITURES ALLOW CALIFORNIA'S
EMPLOYERS TO HAVE THE ABILITY TO
ENGAGE IN ACTIVITY THEY
OTHERWISE WOULDN'T OR THEY WOULD
BE CHALLENGED TO ENGAGE IN
WITHOUT THE PARTICULAR TAX
TREATMENT. SO THE SALAZAR
ECONOMY TO GROW AND PROVIDE GOOD
PAYING JOBS TO OUR RESIDENTS,
WHILE BUSINESS IS EXPANDING, SO
THANK YOU VERY MUCH FOR HAVING
ME HERE TODAY. I APPRECIATE THE
OPPORTUNITY IN THE
CONSIDERATION. THANK YOU, MR
YOUNG. DO WE HAVE QUESTIONS FROM
THE PANEL? YES. THANK YOU, MADAM
CHAIR. I HAVE A QUESTION FOR UM
, MR YOUNG FROM THE CALIFORNIA
CHAIRMAN, COME UP, SO AND REALLY
WANT TO THANK YOU ALL THE EXPERT
FOR YOUR PARTICIPATION THAT
REALLY REALLY IMPRESSED WITH
YOUR PRESENTATION WILL DETAIL
AND REPORT WE APPRECIATE THAT
AND ACCORDING TO THE TAX
FOUNDATION, CALIFORNIA RANKED
NEAR THE BOTTOM OF THE STATE IN
THEIR ANNUAL OBESITY. CLIMATE
INDEX. SO DO YOU HAVE ANY
RECOMMENDATIONS FOR IMPROVING
OUR BUSINESS? CLIMATE SO WE CAN
HAVE MORE. AH BUSINESSES OR
EMPLOYER. TO OUR STATE? SURE,
WELL, THAT THAT OPENS QUITE A
BIG BOX. UM FROM A TAX
PERSPECTIVE, YOU KNOW, I THINK,
JUST KEEPING IT AT HIGH LEVEL
HAVING THE RESEARCH AND
DEVELOPMENT TAX CREDIT COMEBACK
, UNCAPPED AS IT WAS FOR SEVERAL
YEARS BECAUSE THERE WAS THE
CONCERN OF HAVING A RECESSION AT
THE BEGINNING OF COVID PANDEMIC.
INSTILLING. THAT HAS BEEN VERY
IMPORTANT. THAT'S BROUGHT A LOT
OF DEVELOPMENT AND RESEARCH INTO
THE STATE, BUT YOU KNOW WHEN IT
COMES TO CERTAIN TAX TREATMENT,
KEEPING THINGS AS THEY ARE NOW,
RATHER THAN THREATENING
BUSINESSES OR EVEN THREATENING
INDIVIDUALS WHO OWN THE BUSINESS
OR INDIVIDUALS WHO HAVE BUILT IT
UP, SUCH AS A WEALTH TAX, FOR
EXAMPLE, ANYTHING THAT PROVIDES
INSTABILITY OR THE INABILITY TO
PLAN INTO THE FUTURE. THAT'S
WHAT MAKES BUSINESSES SHAKY, SO
I THINK HAVING SECURITY AND
DEFINITE NOUS. IN OTHER WORDS,
MOVING FORWARD ALLOWS FOLKS TO
PLAN PLANNING PLANNING IS KEY.
SO THAT WOULD BE THE
RECOMMENDATION IS FACILITATING
AN ATMOSPHERE WHERE YOU CAN PLAN
. MAYBE IT'S GOOD OR BAD, BUT AT
LEAST YOU HAVE THE ABILITY TO
RELY ON THE SYSTEM. WE
APPRECIATE YOUR ANSWER. THANK
YOU. ASSEMBLYMEMBER'S
PETRIE-NORRIS. RIGHT THANK YOU
ALL FOR BEING HERE AND THAT AND
SHARING YOUR PERSPECTIVES WITH
US TODAY. I THINK IT'S YOU KNOW
WHEN ONE TAKEAWAY FROM THE
PREVIOUS PANEL, AND, UH, YOU
KNOW, MR MILLER FROM YOUR
REMARKS IS THAT YOU KNOW, FOR
OBVIOUS REASONS, IT'S INCREDIBLY
DIFFICULT TO EVALUATE THE
EFFICACY AND THE IMPACT OF ANY
ONE TAX CREDIT WITH A HIGH
DEGREE OF PRECISION AND I THINK
RECOGNIZING THAT THERE. WE ALSO
KNOW THAT THIS COMMITTEE AND THE
LEGISLATURE WE ARE ASKED TO
CONSIDER HUGE, WIDE VARIETY OF
PROPOSALS, MANY OF WHICH SEEM TO
HAVE MERIT. SO ONE THING THAT I
WOULD LOVE TO BE ABLE TO WALK
AWAY FROM THIS HEARING WITH IS
UM YOU KNOW, SORT OF SOME A
GENERAL FRAMEWORK BY WHICH WE
CAN EVALUATE TAX EXPENDITURE
PROPOSALS AS WE MOVE FORWARD,
AND I WOULD LOVE YES. YOU HEAR
PERSPECTIVES FROM, UM FROM EACH
OF YOU ON WHAT YOU WANT. ONE OR
TWO OF THOSE GENERAL PRINCIPLES
MIGHT BE BOTH, YOU KNOW?
SOMETHING THAT WOULD
CHARACTERIZE A TAX CREDIT OR
EXPENDITURE PROPOSAL THAT PRETTY
BOGUS AND YOU KNOW SOMETHING
THAT THAT HAS MERIT, FOR EXAMPLE
, UM PROFESSOR SZYMANSKI, I
THINK YOU SAID NARROW EXEMPTIONS
DON'T ACCOMPLISH MUCH, SO THAT'S
THAT WAS A GENERAL PRINCIPLE
THAT I TOOK AWAY FROM YOUR
COMMENTS. YOU ALSO WERE VERY
CLEAR THAT WE SHOULD BE TAXING
FINAL GOODS AND THINGS THAT YES
, THINGS THAT ARE NOT DOING THAT
. DON'T MAKE SENSE AND OTHER, I
GUESS PRINCIPLES AND I GUESS
JUST TO MAKE IT INTERESTING. SO
MR YOUNG, I THINK YOU START FROM
THE PERSPECTIVE THAT MOST TAX
CREDIT PROPOSALS. MAKE SENSE. I
HEARD, UH. MS KITSON. I THINK
YOU START FROM THE PERSPECTIVE
THAT MOST TAX CREDIT PROPOSALS
DO NOT MAKE SENSE. SO I'D LOVE
TO HEAR, UH MR YOUNG YOUR
PERSPECTIVE ON PUZZLES THAT YOU
THINK AREN'T SENSIBLE. GIVE US A
GENERAL PRINCIPLE. AND THEN MISS
KITSON IF YOU CAN GIVE US A
DONALD PRINCIPLE AROUND TAX
CREDITS AND EXPENDITURES THAT
YOU WOULD SUPPORT AND THINK THE
COMMITTEE SHOULD SUPPORT OKAY.
WOULD YOU LIKE TO START THERE?
OKAY WITH TAX EXPENDITURES TO
MAKE SURE I FRAME IT
APPROPRIATELY TAX EXPENDITURES
THAT FROM A BUSINESS PERSPECTIVE
WOULD NOT MAKE SENSE. THEY
ACTUALLY ARE NOT A GOOD AREN'T
GOING TO HAVE A GOOD R O I FOR
THE STATE OF CALIFORNIA AND
CALIFORNIA TAXPAYERS. OKAY UM
AND SORRY ABOUT THE AWKWARDNESS
OF THE MICROPHONE, BUT I GUESS
I'LL BE STARING THIS WAY. UM I
SUPPOSE TAX EXPENDITURES, UM,
THAT DON'T NECESSARILY ENCOURAGE
BEHAVIOR. THE BUT FOR QUESTION
WE TALKED ABOUT EARLIER WOULD
BEHAVIOR, UM, CHANGE, BUT FOR
THIS TAX CREDIT, SO YOU SEE, UM
, CERTAIN CREDITS THAT WANT TO
ENCOURAGE HIRING OF CERTAIN
DEMOGRAPHICS OF SOCIETY. BUT
MAYBE THAT CREDIT DOESN'T
NECESSARILY INCENTIVIZED A
BUSINESS TO TAKE SOMEBODY THAT
WAS PREVIOUSLY INCARCERATED OR
PREVIOUSLY HAD MILITARY SERVICE
OR PREVIOUSLY WAS ON HOUSED. UM
BECAUSE OF THE CREDITS JUST NOT
BIG ENOUGH. OR MAYBE THEY WANT
PART TIME WORKERS ARE CONTRACT
WORKERS, SO I THINK THE TAX
EXPENDITURES THAT DON'T
CENTRALIZE BEHAVIOR IS THE
STARTING POINT FROM THOSE THAT
DON'T NECESSARILY MAKE SENSE
BECAUSE SOMEBODY AT SOME POINT
GOING TO REAP THE BENEFITS OF
THE CREDIT. IT'S GOING TO BE AN
EXPENDITURE TO THE STATE. BUT
IT'S NOT NECESSARILY
INCENTIVIZING THE KIND OF
BEHAVIOR IT WAS INTENDED TO. SO
UM, I THINK THAT'S THE JUMPING
OFF POINT FOR SOMETHING THAT
WOULDN'T NECESSARILY MAKES SENSE
. UM, ADDITIONALLY IF THE POT OR
THE CAP ON A CREDIT IS NOT UH,
BIG ENOUGH FOR ALL IN THAT
SEGMENT OF THE BUSINESS
COMMUNITY TO REAP THE BENEFITS
OF IT SAY, FOR INSTANCE, UM,
THERE WAS A PROPOSED TAX CREDIT
LAST YEAR TO PUT CHARGING
STATIONS INTO MULTI FAMILY
HOUSING UNITS AND THE CREDIT
PART WAS NOT VERY BIG. I THINK
IT WAS FROM THE DEPARTMENT OF
ENERGY AND I APOLOGIZE IF I MISS
SPEAKING ON THAT, BUT THAT'S THE
SORT OF ISSUE WHERE THERE'S NOT
ENOUGH THERE TO INCENTIVIZE
BEHAVIOR, AND SO I'LL STOP
THERE. BUT I THINK THAT'S THE
JUMPING OFF POINT. OKAY AND THAT
THAT MAKES SENSE TO ME. SO FROM
YOUR PERSPECTIVE. UM THERE.
THERE ARE ALWAYS EVERY YEAR A
NUMBER, YOU KNOW, JUST KIND OF
COUNTLESS PROPOSALS WHERE,
BECAUSE THEY ARE VERY NARROWLY
CRAFTED KIND OF RUN A RISK OF
KIND OF JUST FRITTERING AWAY
HUGE AMOUNTS OF TAX DOLLARS
WITHOUT A MEANINGFUL IMPACT AND
SO YOU'RE FROM YOUR PERSPECTIVE
KIND OF LARGER SCALE, MORE
MEANINGFUL PROGRAMS ARE ACTUALLY
GOING TO DELIVER A BETTER R O. I
RETURN ON INVESTMENT FOR
CALIFORNIA AND OUR TAXPAYERS. I
THINK THAT'S A FAIR WAY OF
SUMMARIZING IT. THAT MAKES
SENSE. THANKS. AND MS KITSON
FROM YOUR PERSPECTIVE AGAIN,
JUST KIND OF HELPING US THINK
THROUGH SOME GENERAL PRINCIPLES
, PERHAPS THAT WE CAN TAKE
FORWARD AS WE CONSIDER PROPOSALS
IN THE COMING YEAR. FROM YOUR
PERSPECTIVE, GENERAL PRINCIPLE
AROUND A AYE. TAX CREDIT
PROPOSAL OR FRAMEWORK THAT YOU
THINK DOES MAKE SENSE. AND, UH
RETURN ON INVESTMENT FOR THIS
STATE. SURE I WOULD THINK. THREE
PRINCIPLES THAT ARE COMING TO
MIND IS AGAIN I TALKED A LOT
ABOUT THE DISTRIBUTIONAL
ASPECTS, WHICH I THINK IS
CRITICAL TO KEEP IN MIND. UM I
THINK THE OPPORTUNITY COST IS
ANOTHER ONE THAT IF IT IS A HUGE
PROPOSAL. WE WANT TO LOOK AT
WHAT ELSE COULD HAVE BEEN SPENT
WITH THAT MONEY AND CONNECTED TO
THAT. WHAT DO WE KNOW? WHAT DOES
THE RESEARCH SAY ABOUT THESE
TYPES OF PROPOSALS? MOST
PROPOSALS THAT YOU MIGHT BE
CONSIDERING ARE THINGS THAT MAY
HAVE BEEN DONE BEFORE ELSEWHERE
. SO WHAT IS THE RESEARCH SAY
ABOUT WHETHER IT'S EFFECTIVE? IF
WE DON'T KNOW THAT IT'S GOING TO
BE VERY EFFECTIVE. IT MIGHT NOT
BE THE BEST USE OF STATE FUNDS
WHEN THERE ARE OTHER PROGRAMS
THAT COULD BE DIRECTLY HELPING
PEOPLE IN THE STATE THAT THERE
ARE STRUGGLING WITH THE HIGH
COST OF LIVING. UM ON THE.
DISTRIBUTIONAL RACIAL EQUITY
IMPLICATIONS. YOU KNOW, THERE'S
NOT ALWAYS DATA ON, OF COURSE.
WE DON'T KNOW. EXACTLY WHO
BENEFITS FROM GIVING TAX
EXPENDITURES. THERE'S NO
REQUIREMENT TO LIST YOUR RACE ON
A TAX RETURN, BUT I THINK IT'S
IMPORTANT TO LOOK AT DATA ON
WHAT WE KNOW ABOUT THE RACIAL
DISTRIBUTIONS OF WHO'S WHO HAS
CERTAIN TYPES OF EXPENSES. FOR
INSTANCE, ANY KIND OF TAX CREDIT
THAT REWARDS FAMILIES THAT
ALREADY HAVE WEALTH. UM MAY BE A
. LESS DESIRABLE THAN, SAY, A
NEW TYPES OF NEW TYPE OF
EXPENDITURE THAT'S GOING TO HELP
FAMILIES BUILD WEALTH. UM SO
I'LL LEAVE IT THERE. THANK YOU.
OKAY THANK YOU. AND MR EULER AND
PROFESSOR CHOMSKY. THANK YOU
COVERED SOME OF THAT. IN YOUR
OPENING COMMENTS, BUT ANYTHING
THAT YOU WOULD HAVE HAD BEFORE
WE MOVE ON TO THE NEXT QUESTION
? YEAH I MEAN, MAYBE TWO TO JUST
ADD ONE ADDITIONAL THING THAT
WASN'T MAYBE NOT THE MOST
IMPORTANT BUT ADDING ONTO THE
COMMENT THAT HAVE ALREADY BEEN
MADE. YOU KNOW, ONE THING TO
CONSIDER IS YOU KNOW, TAX
EXPENDITURES ARE JUST ONE WAY OF
ACHIEVING, YOU KNOW, A
PARTICULAR OBJECTIVE, RIGHT OR
ADDRESSING A PROBLEM. YOU KNOW,
THE BUSINESS COMMUNITY MAY COME
AND SAY WE HAVE THIS ISSUE. WE
THINK WE NEED THIS TAX
EXPENDITURE FOR THIS, BUT YOU
MIGHT THINK CRITICALLY ABOUT IS
THERE SOME WAY FOR YOU KNOW SOME
SORT OF EXPENDITURE PROGRAM, A
GRANT PROGRAM SOME OTHER AVENUE
THAT WOULD HAVE THE BUDGETARY
OVERSIGHT. TO ACHIEVE THE SAME
GOAL OR SIMILAR GOALS OR ARE
THEIR REGULATORY CHANGES OR
OTHER THINGS THAT ACHIEVE THIS?
SO JUST THINKING, YOU KNOW, TAX
EXPENDITURES AREN'T NECESSARILY
THE ONLY WAY OF ADDRESSING SOME
OF THE OBJECTIVES THAT ARE, YOU
KNOW THE GOALS OF TAXES.
MINISTER PROPOSALS. UM. I WOULD
JUST GO BACK TO THE BREATH AND
BASIC PUBLIC POLICY PRINCIPLES
IN GENERAL, UM, TAX EXPENDITURES
ARE SPENDING AND WE SHOULD SPEND
ON THINGS WHERE THERE IS A
PUBLIC GOOD AND THE PUBLIC GOOD
IS GOING TO BE ADVANCED AND
PUBLIC. GOOD DEFINED TECHNICALLY
, IS WHERE THE PRIVATE SECTOR
WON'T PRODUCE IT RIGHT. SO UM
RIGHT NOW, LET'S SAY IN THE
CONTEXT OF CHARGING STATIONS AND
AREA I KNOW NOTHING ABOUT BUT
ONE MIGHT WONDER RIGHT WITH GAS
PRICES AND WITH THE FEDERAL
SUBSIDIES DO THE INFLATION
REDUCTION ACT. DO WE? WHAT'S
GOING TO HAPPEN? RIGHT ARE WE
GETTING BANG FOR OUR BUCK TO
CREATE SOME ADDITIONAL ITTY AND
THAT'S WHAT I MEANT WITH THE
MORTGAGE INTEREST, UM,
PRODUCTION AS WELL. THERE ARE
OTHER AREAS. THERE ARE SOME
AREAS WHERE I THINK IT'S CLEARLY
LIKELY BUT THEIR TABLET THAT
THEY'RE GENERALLY GOING TO BE,
UM BROAD AREAS, UM AND NOT AND
NOT NARROW ONES. AND, UH I WOULD
JUST ADD WITH THAT AS WELL, YOU
KNOW. ONCE YOU START GOING DOWN
THIS ROAD, RIGHT AND YOU'RE
OBVIOUSLY WE'RE WAY DOWN IT AND
YOU START GIVING TAX INCENTIVES
RIGHT NOW. OUR TAX CODE IS
POROUS. OUR RATES ARE HIGHER
RATES ARE HIGHER, MORE
BUSINESSES COMMENTED. THE RATES
ARE HARD. WE THEREFORE WE WANT
MORE TAX BREAKS. UM AND SO I
DON'T KNOW HOW TO CALL A TIME
OUT. BUT RIGHT, BUT BUT IT
BEGINS TO FEED UPON ITSELF
RIGHT? WE COULD HAVE VERY FEW
BUSINESS TAX EXPENDITURES AND
PROBABLY HAVE A 7% CORPORATE TAX
RATE. AND THAT WOULD BE THE BEST
THING ECONOMICALLY FOREVER, ALL
FOR ALL CALIFORNIA BUSINESSES.
THANK YOU. QUESTIONS. CERVANTES.
PROFESSOR THANK YOU ACTUALLY HIT
ON MY QUESTION. UM THIS BACK AND
FORTH BETWEEN ARE THE ARGUMENT
THAT OUR TAX CODE IS THE HIGHEST
TAX RATE IS THE HIGHEST ACROSS
THE NATION AND THEN COMING BACK
AND ASKING FOR TAX EXPENDITURES
. WHAT DO YOU THINK THE BEST
APPROACH MOVING FORWARD WOULD BE
TO MITIGATE THAT CHALLENGE
BECAUSE IT'S GOING TO GET TO THE
POINT. POTENTIALLY WHERE WE HAVE
TWICE AS MUCH TAX RATE AND THEN
WE HAVE TWICE AS MUCH TAX
EXPENDITURE AND THAT'S NOT DOING
ANYBODY ANY GOOD. RIGHT? SO HOW
DO WE ADDRESS THAT COURT ISSUE?
THAT'S A GREAT QUESTION WELL,
REACHING FAR BACK INTO HISTORY.
THE UM 1986 TAX REFORM ACT AT
THE FEDERAL LEVEL DRAMATICALLY
CUT INCOME TAX RATES AT THE
FEDERAL LEVEL AND BROADEN THE
INCOME TAX BASE. AND THAT WAS A
DEMOCRATIC CONGRESS AND THE AND
THE AND THE REAGAN
ADMINISTRATION. SO IT IS A
IMAGINABLE RIGHT THAT WE COULD
GO THROUGH THE LIST OF TAX
EXPENDITURES WILL GET RID OF A
LOT OF THEM AND REDUCE ITS STILL
THERE. JUST POSSIBLE TO HAVE
THIS BIG REFORM IN IN THE IN
THIS CONTEXT WOULD TAKE A TWO
THIRDS VOTE RIGHT TO ACTION, SO
I'M NOT SURE HOW EASY THAT'S
GOING TO BE. CERTAINLY, I THINK,
UM BEING EXTREMELY SKEPTICAL OF
FUTURE OF TAX INCENTIVES IS ONE
APPROACH AND THEN I ALSO DO
THINK THAT LOOKING AT THE
EXPENDITURES THAT ARE THERE AND
TRYING TO MAYBE BUILD CONSENSUS
TO GET RID OF THE WORST ONES,
UM, CREATES MORE ROOM TO LOWER
THE TAX RATES OR TO GIVE BETTER
TAXES OR TO GIVE TAX INCENTIVES
AND OTHER AREAS THAT ACTUALLY
MAKES SENSE. AND SO JUST TO GO
BACK BECAUSE IT'S WORTH POINTING
THIS OUT. YES THE CORPORATE TAX
EXPENDITURES ARE LOWER THAN THE
PERSONAL INCOME TAX EXPENDITURES
. BUT THE PERSONAL INCOME TAX
TAKING CALIFORNIA IS WAY BIGGER
THAN THE CORPORATE TAX.
CORPORATE TAX EXPENDITURES ARE A
BIGGER PERCENTAGE OF THE
CORPORATE TAX BASE. UM, AND
FURTHERMORE, THE WATER'S EDGE
ELECTION WAS THE RESULT. UH
BULLYING FROM THE REAGAN
ADMINISTRATION IN THE EIGHTIES
AND WAS NOT A RESULT OF ACTUAL
POLICY ANALYSIS AT THE STATE
LEVEL. THANK YOU FOR THAT, MR
EULER TO GO BACK TO YOUR
PRESENTATION. YOU SHARE THE
EXAMPLE OF THE FILM INDUSTRY
THAT A THIRD OF THOSE ENTITIES
DID BUSINESS IN THE STATE OF
CALIFORNIA DESPITE NOT RECEIVING
THE TAX EXEMPTION. DO WE HAVE
ANY DATA OR INSIDE AS TO WHY
THAT TOOK PLACE? REGARDLESS EVEN
THOUGH THE ARGUMENT WAS WE WOULD
LEAVE OR WE WOULD NOT DO
BUSINESS MOVING FORWARD. YEAH I
MEAN, I DON'T I DON'T KNOW ABOUT
ABOUT DATA, BUT I MEAN, I THINK
THAT THE GENERAL IDEA IS THAT
THAT THAT THERE'S A LOT OF
CONSIDERATIONS FOR PRODUCTION
RIGHT ON ON WHERE THEY LOCATE
THE FILM TAX CREDIT OR THE
AVAILABILITY OF IS ONE OF THOSE,
BUT I THINK THERE'S A LOT OF,
YOU KNOW, TALKING ABOUT THE
AVAILABILITY OF SKILLED LABOR OR
WHETHER OR NOT THE LOCATION
MATCHES THE KIND OF SCENE THAT
THEY'RE LOOKING FOR. WHAT SO
THERE'S A VARIETY OF
CONSIDERATIONS. THE FILM CREDITS
ONLY ONE OF THEM AND FOR YOU
KNOW, SOME NUMBER OF THESE
PRODUCTIONS. THE AVAILABILITY OR
NOT OF IT IS NOT ENOUGH TO MAKE
THEM ACTUALLY CHANGED THEIR
MIND. AND I THINK THAT GENERAL
PRINCIPLE AH, YOU KNOW, APPLIES
IN THINKING ABOUT ALL THESE TAX
CREDITS AND MAYBE HELPS YOU
THINK ABOUT EVEN WHEN WE DON'T
HAVE DATA OR STUDY TO THINK
ABOUT THE POTENTIAL WINDFALL
BENEFITS. YOU KNOW, UH, THINKING
ABOUT QUESTIONS ALONG THE LINES
OF YOU KNOW HOW MUCH AH, HOW
MUCH IS THIS TAX EXPENDITURE
MATTER TO YOUR BUDGET OR TO THIS
PARTICULAR SITUATION IF IT'S IF
IT'S CHANGING 5% OF YOUR BUDGET
THAT MIGHT NOT REALLY, YOU KNOW,
CHANGE YOUR DECISIONS AND MUCH
OF ITS 50% OF YOUR YOU KNOW YOUR
BUDGET OR YOUR DECISION THAT
YOU'RE THINKING ABOUT. SO JUST A
GENERAL PRINCIPLE THERE. RIGHT?
ASSEMBLYMEMBER'S PACHENKO. SO
THIS, UM GOES TOUCHED UPON WHAT
A SIMILAR MERIT.
ASSEMBLYMEMBER'S VALENCIA ASKED
ABOUT THE FILM TAX CREDIT. HOW
DO WE COMPARE WITH OTHER STATES
WITH RESPECT TO OUR FILM TAX
CREDIT? ARE WE AT PAR WITH OTHER
STATES? YEAH I MEAN, I THINK,
UH, SO THERE I THINK THE NUMBER
IS CURRENTLY 37. SO THE MAJORITY
OF OTHER STATES HAVE SOME SORT
OF FILM TAX INCENTIVE. TÂM I
THINK WE'RE SOMEWHERE. IN THE
MIDDLE, MAYBE LIKE UPPER MIDDLE
IN TERMS OF GENEROSITY OF OUR OF
OUR PROGRAM, COMPARED TO OTHER
SEATS ARE CERTAINLY OTHER LARGE
STATES THAT OFFER MORE GENEROUS
PROGRAMS AND OURS IN TERMS OF,
UH, SOME ELEMENTS OF OUR PROGRAM
THAT ARE, I GUESS YOU COULD SAY
LESS GENEROUS OR THAT WE HAVE AN
ANNUAL ALLOCATION CAP. THAT'S
ONLY $330 MILLION OF CREDIT CAN
BE ALLOCATED EVERY YEAR. THERE'S
SOME STATES THAT IT'S ALMOST AN
ENTITLEMENT THAT THERE'S NO
LIMIT ON THE AMOUNT OF THE
CREDIT. THERE'S OTHER STATES
THAT ALLOW THE TAX CREDITS TO BE
REFUNDABLE OR TRANSFERABLE,
WHEREAS WE DON'T ALLOW THAT. AND
SO THE CLAIMING OF IT IS A
LITTLE LESS FLEXIBLE. SO UM,
THERE ARE SOME NUMBER OF LARGER
STATES WHERE THAT'S TRUE. AND
THEN THERE ARE A LOT OF STATES
THAT HAVE, YOU KNOW SMALLER
ALLOCATIONS AND MORE RESTRICTIVE
CREDITS. AND SO WE'RE PROBABLY
SOMEWHERE IN IN THE MIDDLE THERE
IN TERMS OF THE GENEROSITY, I
GUESS. THANK YOU.
ASSEMBLYMEMBER'S LUNCH. YES,
THANK YOU, MADAM CHAIR AND JUST
ONE FINAL QUESTION WOULD REALLY
APPRECIATE THAT THE PERSPECTIVE
FROM BOTH MISS KITSON AND MR
YOUNG REGARDING THIS THIS
QUESTION, WHAT WOULD IN YOUR
PERSPECTIVE BE A BETTER FIT TO
ADDRESS? BOTH OF THESE
CHALLENGES, RIGHT? I'M IN THE
BUSINESS SECTOR WOULD BE BEST TO
CONTINUE DOWN THIS ROAD OF TAX
EXPENDITURES WHILE POTENTIALLY
INCREASING TAX RATE. UM AND
THEN, OR VICE VERSA, RIGHT,
LOWERING THE TAX EXPENDITURE AND
THEN ALSO EQUALLY LOWERING THE
TAX RATE ON WHAT WOULD BE MOST
BENEFICIAL FOR THE BUSINESS
SECTOR. AND, OF COURSE, ALSO,
SAME QUESTION FOR MR KITSON.
THANK YOU. WELL. AGAIN. WE'RE
PONTIFICATING HERE. SO, UM THE
THOUGHTS INTERESTING. I MEAN, I
DON'T KNOW IF IT NECESSARILY
EXCLUDES OR INCLUDES AN INVERSE
EFFECT. IF YOU DO ONE, AND THEN
YOU HAVE THE OTHER RIGHT.
PROFESSOR SHARANSKY IS PROBABLY
BETTER TO TALK ABOUT THE NOT
THAN I AM. UM BUT YEAH, YOU HAVE
A SITUATION WHERE YOU NEED TO
INCENTIVIZE BUSINESS NUMBER ONE
TO STAY. WE HAVE OTHER STATES
THAT ARE ACTIVELY POACHING OUR
BUSINESSES AND THEY'RE DOING A
VERY GOOD JOB OF IT. WHAT DOES
THAT TAX RATES ARE ONE OF THEM
TAX BREAKS OR ANOTHER ONE OF
THEM THE ABILITY TO HIRE WITHOUT
ALL THE IMPLICATIONS THAT COME
ALONG WITH IT IN CALIFORNIA, IS
ANOTHER PART OF THAT. SO WHETHER
IT'S THE RATES OR THE
EXPENDITURES THAT HAVE TO BE
ADJUSTED AS DIFFICULT TO SAY,
BUT WHAT I CAN SAY IS SOME
CONSISTENCY IS CERTAINLY
NECESSARY. SO IF YOU START
TINKERING WITH TAX RATES. I
THINK PERSONALLY, THAT WOULD
PROBABLY THROW BUSINESS IN INTO
MORE OF A TAILSPIN, TINKERING
WITH CERTAIN TAX CREDITS. NOW
THAT BEING SAID THERE ARE TAX
CREDITS LIKE RESEARCH AND
DEVELOPMENT THAT ARE ABSOLUTELY
IMPERATIVE TO INDUSTRIES IN THE
STATE PHARMACEUTICALS, ONE OF
THEM, UM TECH IS ANOTHER
INDUSTRY THAT RELIES ON IT
HEAVILY SO UM, I WISH I COULD
GIVE YOU A WON'T. I MEAN, THIS
IS ABOUT AS CLEAR AS MUD AND I
APOLOGIZE, BUT I MEAN, MY
THOUGHT PROCESS HERE IS, UM,
STABILITY AND CONSISTENCY ARE
IMPORTANT AND MESSING WITH THE
TAX RATE AS OPPOSED TO THE
EXPENDITURES, I THINK MIGHT
THROW IT OUT OF BALANCE. UH, ALL
THINGS CONSIDERED, BUT CERTAINLY
DISCUSSION TO CONTINUE. THANKS
FOR THAT QUESTION. UM I WOULD GO
BACK TO A LOT OF WHAT? UM WHAT
MR SANSKI AND MR EULER HAVE
SAID, UM, I THINK WELL, LET ME
PREFACE THIS BY SAYING, IF YOU
HAVE SEEN OUR ORGANIZATIONS
WORK, WE WOULD ACTUALLY ARGUED
THAT YOU COULD INCREASE THE RATE
AND CUTBACKS ON SOME BREAKS. BUT
IF YOU'RE ASKING ABOUT KEEPING
IT REVENUE NEUTRAL, I WOULD
THINK THAT IT WOULD BE MORE
IMPORTANT TO BROADEN THE BASE AS
MR SZYMANSKI HAS TALKED ABOUT,
UM WHICH COULD ALLOW YOU TO
BRING THE RATE DOWN, SINCE A LOT
OF THESE TAX EXPENDITURES ARE
REALLY JUST BENEFITING CERTAIN
INDUSTRIES AND INSTEAD OF
PROVIDING BENEFITS FOR
BUSINESSES AS A WHOLE, UM AND I
ALSO WANT TO REITERATE THAT
WE'RE NOT NECESSARILY TALKING
ABOUT JUST GETTING RID OF ALL
THE ALL THE TAX BREAKS. SOME OF
THEM MIGHT HAVE SOME SOME MERIT,
BUT THERE ARE WAYS TO LOOK AT,
UM SCALING THEM BACK SO THAT
THEY ARE MORE BETTER TARGETED
AND YOU KNOW, COULD FREE UP SOME
REVENUE TO DO OTHER THINGS.
RIGHT I JUST HAVE, UM MY
COLLEAGUES HAVE GONE THROUGH A
LOT OF MY QUESTIONS ALREADY. BUT
FOR MR SHANKS KEY YOU YOU TALKED
ABOUT THAT? YOU'RE THE DEATH
DIFFERENCE IN THE DEFINITION
THAT YOU HAVE OF TAX
EXPENDITURES WITH D O F YOUR
TIME OUT FINAL CONSUMPTION FOR
THAT MANUFACTURING TAX CREDIT.
ARE THERE OTHER ITEMS THAT YOU
SEE A SIMILAR TO THAT? OH THAT'S
A GREAT QUESTION. UM I HAVE TO
THINK MORE ABOUT IT. BUT SO
THERE'S SHORT ANSWER IS THAT.
THERE ARE OTHER, UM, OBJECTS
THAT THINGS THAT SHOULD BE IN OR
OUT OF THE INCOME AND SALES TAX
BASE FOR SURE. SO IN GENERAL,
THE SALES TAX BASE, WE SHOULD
MEAN WE SHOULD EXCLUDE BASICALLY
ALL BUSINESS TO BUSINESS CELLS.
THAT WOULD BE WHAT THE SALES TAX
THEORY WOULD RECOMMEND. AT THE
SAME TIME, WE SHOULD INCLUDE ALL
FINAL CONSUMPTION, SO THAT WOULD
BE ALL FINAL SERVICES AS WELL AS
ALL DIGITAL GOODS. UM YOU KNOW
THE ROUGH SENSE OF WHAT THAT
WOULD MEAN IN TERMS OF THE SALES
TAX BASES WOULD ACTUALLY KIND OF
NEGATED. SO RIGHT NOW WE'RE
ABOUT AGAIN. THERE'S A RULE OF
THUMB THAT ABOUT 40% OF THE
SALES TAX BASES BUSINESS TO
BUSINESS SALES, BUT THAT WE
DON'T TAX ABOUT THE EQUIVALENT
AMOUNT OF OUR ECONOMY AS WELL.
THAT SHOULD BE HIS TAX NAME WITH
THE SERVICES, FINAL SERVICES AND
DIGITAL GOODS, SO THAT WOULD BE
A STRUCTURAL CHANGE THAT WOULD
PROBABLY BE REVENUE NEUTRAL.
THERE'LL BE WINNERS AND LOSERS.
UM, THAT WOULD MAKE THE SALES
TAX MORE RIGOROUS. UM SO THAT'S
ONE EXAMPLE IN THE INCOME TAX
WORLD. UM WE TALKED ABOUT THE
WATER'S EDGE ELECTION AND OTHER
CONFORMING THINGS. THERE ARE UM
OTHER ITEMS OF INCOME THAT WE
THAT ARE NOT HAVE IT IN A
FOOTNOTE, FOR INSTANCE, UM SO
THIS IS RECEIVED A FAIR AMOUNT
OF PRESS ATTENTION, BUT, UM WHEN
YOU, UM I HAVE APPRECIATION OF
ASSETS RIGHT? THAT APPRECIATION
IS NOT TAXED, EVEN THOUGH YOU'RE
ECONOMICALLY BETTER OFF FOR MOST
OF US. THAT DOESN'T REALLY
MATTER BECAUSE WE DON'T DO MUCH
WITH THAT APPRECIATION IN OUR
PENSION FUND OR HOUSES, BUT FOR
THE REALLY, REALLY, REALLY
WEALTHY THEY CAN BORROW AGAINST
THAT AND ESSENTIALLY CONSUME AND
SPEND AGAINST THAT APPRECIATION
AND ECONOMIC WEALTH AND THE
ASSUMPTION HAS BEEN THAT THAT IS
HARD TO TAX. IT'S NOT THAT HARD
, UM PRESIDENT BIDEN'S
BILLIONAIRES MINIMUM INCOME
TAXES PROPOSAL TO DO THAT, SO,
TO THE EXTENT THAT WE DON'T TRY
TO TAX AT LEAST THE APPRECIATION
OF ASSETS IN THE HANDS OF THE
SUPER WEALTHY WHEN IT'S BORROWED
AGAINST AND CONSUMED, I WOULD
CONSIDER THAT A TAX EXPENDITURE
AS WELL. SO I THINK, YOU KNOW,
GIVEN ENOUGH TIME I CAN COME UP
WITH WITH A LOT OF THEM. RIGHT
AND, UM, YOU ALREADY KNOW THAT
THIS COMMITTEE NOW HAS THE
SUNSET AND SECTION 41 COMPLIANCE
POLICIES. IS THERE ANYTHING ELSE
THAT WE SHOULD DO TO PROVIDE
BETTER OVERSIGHT FOR, UM
POTENTIALLY, UH NEW TAX
EXPENDITURES. I MEAN, I THINK
THAT THIS SCRUTINY YOU'RE
APPLYING GOING FORWARD.
EXCELLENT I THINK THERE'S ROOM
FOR IMPROVEMENT AS OBVIOUS KIDS
AND TALKED ABOUT, BUT I THINK
THE REAL ISSUE IS ALL THE STUFF
THAT'S ALREADY BAKED IN. THAT'S
GOING ON AUTOPILOT, AND I THINK
THE BEST THING THE COMMITTEE
COULD DO IS TO GO AND LOOK AT
THE THINGS THAT ARE ALREADY
GOING TO HAPPEN. UM AND
INTERROGATE THOSE THE WAY WE
INTERROGATE. ON THE OTHER. A. IF
SOMEBODY BROUGHT THESE PROPOSALS
TO THAT, FOR THE FIRST TIME IT'S
ALWAYS IT'S A PROBLEM BECAUSE
EVERYBODY'S GOTTEN USED TO THAT
ENTITLEMENT. RIGHT SO GOING BACK
IS DIFFICULT. BUT I AM VERY GLAD
THAT WE DO HAVE THOSE, UM, THOSE
SUNSET PROPOSALS GOING FOR GOING
FORWARD. YOU HAD TALKED ABOUT
THE POTENTIAL CONFORMITY WITH
THE TRUMP TAX LAW AND WHAT WAS
IN THE INFLATION REDUCTION? HOW
MUCH POTENTIAL REVENUE WITH THAT
BRING IN. DO YOU HAVE ANY IDEA?
WELL THE DEPARTMENT OF FINANCE
ESTIMATES THAT GETTING RID OF
THE WATERS AT ELECTION. SO
BRINGING BACK IN, UM THE SHIFTED
PROFITS OF BIG MULTINATIONAL
CORPORATIONS WOULD INCREASE
REVENUE BY ABOUT FIVE BILLION
SUBJECT TO A MILLION CAVEATS.
BUT THAT'S THE ORDER OF
MAGNITUDE RIGHT THAT THAT THAT
DEPARTMENT OF FINANCE HAS
ESTIMATED GUILTY THAT, UM, IS A
FEDERAL PROVISIONS MEANT TO
BRING BACK THAT SAME PART OF
MONEY. AND UM AND CONFORMING TO
THE CORPORATE ALTERNATIVE
MINIMUM TAX WOULD BASICALLY
BRING BACK GUILTY AND A LITTLE
BIT MORE AS WELL. SO I WOULD PUT
FIVE BILLION AS THE CEILING FOR
WHAT THOSE CONFORMITY POSITIONS
WOULD BRING AND GUILTY AS SOME
SUBSTANTIAL PERCENTAGE OF THAT
AND THE CORPORATE ALTERNATIVE
MINIMUM TAX. EVEN HIGHER
PERCENTAGE OF THAT. AND GET RID
OF THE WATER. SUCH ELECTION CAN
THEORETICALLY WOULD PRODUCE.
WHAT THE SO I MEAN, THIS MIGHT
NOT BE EXACTLY FAIR, BUT FOR MR
YOUNG, WHAT'S THE ARGUMENT
AGAINST, UM, THAT CONFORMITY IN
THE WATER'S EDGE ELECTION? WELL
FEDERAL CONFORMITY IS SOMETHING
WE DO TYPICALLY, LIKE, RIGHT? I
MEAN, THAT IS TYPICALLY A GOOD
THING. UM IN THIS INSTANCE,
THOUGH, AND CRESTOR SANSKI, UH,
I APPRECIATE IT HOW HE PUT IT
EARLIER BULLYING FROM THE REAGAN
ADMINISTRATION OF APPRECIATED
THAT IN WHEN YOU LOOK BACK AT
THE HISTORY OF THE WATER'S EDGE
ELECTION, THERE'S SEVEN YEARS OF
NEGOTIATIONS THAT WENT INTO THAT
THAT WAS DEBATED BY THIS
LEGISLATURE. AND THAT WAS
SOMETHING THAT WAS CONSIDERED,
AND IT WAS CONSIDERED TO BE
SERIOUS ENOUGH TO PUT THAT KIND
OF POLICY INTO PLACE. AND SO IT
REALLY DEPENDS ON WHAT KIND OF
BUSINESS COMMUNITY YOU'RE
TALKING ABOUT WHEN YOU WANT TO
HAVE CONFORMITY TO GUILTY AS
OPPOSED TO CONTINUING ON THE
WATER'S EDGE ELECTION. IT'S
ADVANTAGEOUS. FOR SOME. IT'S NOT
INVITE AEGIS FURTHER, SO I DON'T
MEAN TO SKIRT THE QUESTION, BUT
AT THE SAME TIME, IT'S JUST TOO
UNIQUE TO EACH ORGANIZATION TO
SAY IT'S AN ALL OR NOTHING
APPROACH. ALRIGHT UM MISS
KITSON, UH, WELL, I CERTAINLY
UNDERSTAND YOUR PERSPECTIVE AND
WE ARE BIG FANS OF B I T C AND
THE CHILD TAX CREDIT. BUT DO YOU
EVER ACCOUNT THERE'S A CENTER
ACCOUNT FOR INCREASED ECONOMIC
ACTIVITY WITH SOME OF THESE
INCENTIVES AND THE POTENTIAL
JOBS THAT BRINGS TO A COMMUNITY.
THAT IS SOMETHING TO CONSIDER.
OF COURSE, I THINK THE BIG THING
IS THAT WHEN YOU LOOK AT THE
RESEARCH THAT HAS ALREADY BEEN
DONE ON A LOT OF THESE TAX
EXPENDITURES, THERE IS NOT SUPER
CONVINCING EVIDENCE THAT THEY DO
MEANINGFULLY INCREASED, UM,
LEADS TO ECONOMIC GROWTH OR JOB
GROWTH. UM, WE DON'T HAVE A
SYSTEM OF MODELING THESE THE
REVENUE SO WE DON'T HAVE ANY WAY
TO QUANTIFY THAT. BUT IT IS
DEFINITELY SOMETHING THAT WOULD
BE KEEP IN MIND, AND I KNOW
THAT'S LIKE AN IMPORTANT
CONSIDERATION. YEAH. AND THESE
THINGS ARE VERY HARD TO MEASURE
AND MOST OF US LOOK AT
ANECDOTALLY MY COMMUNITY. I KNOW
THAT, FOR INSTANCE, THE
CALIFORNIA COMPETES TAX CREDIT
DID BRING A LOT OF JOBS TO THE
COMPANIES THAT I KNEW OF. AND
CERTAINLY, UM, WHEN YOU'RE
TALKING ABOUT CHANGING CONSUMER
BEHAVIOR, LET'S SAY WE'RE REALLY
CONCERNED WITH CLIMATE CHANGE.
YOU HEAR A LOT OF PEOPLE A LOT
OF MY FRIENDS TALKING ABOUT. HEY
IF I CAN GET A BIG REBATE FOR A
HEAT PUMP, THEN I'LL DO THAT.
BUT I SUPPOSE THOSE TYPE OF
THOSE TYPE OF ANECDOTES ARE NOT
DATA. SO IT IS, UM IT IS, UH
DIFFICULT. AND SO THEN I MY LAST
QUESTION IS FOR MR YOUNG
CALIFORNIA'S EDUCATIONAL SYSTEM
IS ALREADY ONE OF THE BEST IN
THE WORLD AND WE HAVE SILICON
VALLEY ARE TAX EXPENDITURES
FOCUSED ON PROMOTING INNOVATION
REALLY NECESSARY TO MAINTAIN
CALIFORNIA'S EDGE. I THINK THE I
ANSWERED. YES IT ABSOLUTELY IS.
AND THE REASON WHY IS THAT'S THE
REASON WE'VE GOTTEN TO THIS
POINT? UM THERE WAS A STUDY DONE
BY THE MILKEN INSTITUTE LAST
YEAR, WHICH LOOKED AT THE
RESEARCH AND DEVELOPMENT TAX
CREDIT. IT LOOKED AT HOW MUCH
RESEARCH AND DEVELOPMENT WE DO
IN THE STATE OF CALIFORNIA THE
MULTIPLIER EFFECT THAT HAS THE
WAGES THAT WE PAY. IT'S ALL TOP
SHELF WHEN IT COMES TO THOSE
INDUSTRIES, AND I THINK BY AND
LARGE, IT IS BECAUSE THE
BEHAVIORS INCENTIVIZED BY THAT
TAX EXPENDITURE, AND SO, YES, I
THINK IT'S A GOOD THING. THANK
YOU. AND I WANT TO THANK ALL THE
PANELISTS TODAY. UM, THIS WAS
VERY, VERY INFORMATIVE AND YOU
ARE FREE TO RETURN TO YOUR
SEATS. BUT WE WOULD LIKE TO SEE
IF THERE'S ANY MEMBERS OF THE
PUBLIC THAT I WOULD LIKE TO
SPEAK. LET'S GO AHEAD, GO AHEAD.
OF THE SHOCKER TODAY.
I COULD AFTERNOON JANICE
O'MALLEY. I'M WITH THE AMERICAN
FEDERATION OF STATE COUNTY
MUNICIPAL EMPLOYEES. REALLY
APPRECIATE THE CONVERSATION HERE
TODAY WANTED TO DRAW YOUR
ATTENTION TO, UM AH TAX
EXPENDITURE THAT THE LEGISLATURE
HAD PASSED LAST YEAR WAS THE
WORKERS, UH, TAX FAIRNESS
CREDIT? UM, AND THIS FOR THOSE
WHO WEREN'T IN THE LEGISLATURE
LAST YEAR WAS A REFUNDABLE TAX
CREDIT PROPORTION OF UNION DUES
, ALLOWING WORKERS IN LOW WAGE
INDUSTRIES WHO DO NOT ITEMIZE OR
TAXES TO RECEIVE THE BENEFITS OF
THE TAX CREDIT. WE ARE NOT
SEEKING FUNDING THIS YEAR FOR,
UM, THE TAX EXPENDITURE, BUT
WE'RE REALLY HOPING THAT IN
FUTURE YEARS WE CAN CONSIDER
THAT. WE BELIEVE THAT IT REALLY
COMPLEMENTS THE RECENT TAX
POLICIES CONNECTED TO BENEFIT
LOW WAGE WORKERS AND FAMILIES
LIKE THE EITC, THE CHILD TAX
CREDIT AND THE FOSTER YOUTH TAX
CREDIT. SO JUST WANTED TO MAKE
SURE THAT THAT'S AH BACK IN YOUR
MINDS AS YOU MAKE YOUR DECISIONS
MOVING FORWARD. BECAUSE IT
REALLY DOES MAKE A DIFFERENCE
WITH THE RISING GAS PRICES AND
INCREASED COST OF LIVING, SO
APPRECIATE IT. GOOD MORNING,
KATIE HARDMAN WITH THE
CALIFORNIA TEACHERS ASSOCIATION
. JUST WANT TO SAY THANK YOU FOR
HOLDING THIS HEARING TODAY AND
FOR THE CONVERSATION. I THINK
IT'S REALLY HELPFUL. WE WOULD
JUST ENCOURAGE YOU TO CONTINUE
TO DO YOU KNOW, ONGOING
OVERSIGHT OF TAX EXPENDITURES
AND GENERAL SKEPTICISM OF FUTURE
ADDITIONAL TAX EXPENDITURES. I
JUST WANT TO HIGHLIGHT FOR THE
COMMITTEE, YOU KNOW FOR EVERY
DOLLAR THAT'S PROVIDED IN A TAX
EXPENDITURE. UM BASICALLY TAKES
ABOUT 40 CENTS OUT OF OUR PUBLIC
SCHOOL CLASSROOMS. SO I JUST
WANTED TO FLAG THAT FOR
EVERYONE. THANKS. HELLO ANA
HASSLE BED WITH THE UNITED WAYS
OF CALIFORNIA AND A PROUD MEMBER
OF THE CALI EITC COALITION. I
WANTED TO START BY THINKING THIS
COMMITTEE FOR HOLDING THIS
HEARING AND THE STAFF AND
PRESENTERS FOR PUTTING TOGETHER
A COMPREHENSIVE REVIEW OF TAX
EXPENDITURES OFTEN STATED IN THE
LEGISLATURE IS OUR BUDGET IS A
REFLECTION OF OUR VALUES, BUT
ONLY AND EXAMINED BUDGET WILL
TRULY ACCOMPLISHED THIS VALUE
ALIGNMENT. AS OUTLINED IN THE
PRESENTATION FROM THE CALIFORNIA
BUDGET AND POLICY CENTER. ONLY
ABOUT 1 70 IF OF ALL TAX
EXPENDITURES ARE DIRECTED AT
CALIFORNIANS WITH LOW INCOMES.
WE ALSO KNOW THAT TAX, UM TAX
CREDITS DIRECTED AT RELIEVING
POVERTY HAVE AN IMMEDIATE AND
LONG TERM POSITIVE IMPACT ON THE
FAMILIES THAT CLAIM THEM AND
THEIR LOCAL ECONOMIES.
CONSIDERING THAT CALIFORNIA
SUFFERS FROM THE SOME OF THE
NATION'S HIGHEST POVERTY RATES
DUE TO LIVING EXPENSES, THE MORE
WE CAN DO TO TARGET AND GROW TAX
CREDITS FOR HOUSEHOLDS WITH LOW
INCOMES, THE GREATER THE
COLLECTIVE BENEFITS FOR THE
ENTIRE STATE WILL BE WE HAVE AN
ARRAY OF RESOURCES, UM, AND
CRITICAL BUDGET DECISIONS TO
MAKE THIS YEAR AS BILLS MOVED
THROUGH THIS COMMITTEE, WE URGE
YOU TO PUT FIRST AND FOREMOST
POLICIES THAT HELP FAMILIES THAT
ARE STRUGGLING TO GET BY AFFORD
HOUSING. CHILDCARE CHILDCARE,
ETCETERA. AND THAT ARE PROVEN TO
ADDRESS THE RACIAL WEALTH GAP.
EXPANDING THE YOUNG CHILD TAX
CREDIT AND SETTING A MINIMUM OF
AT LEAST $300 FOR THE CALI EITC
OR TWO COMPELLING WAYS TO
ACHIEVE THESE GOALS AND LIVE OUR
VALUES IN THE STATE BUDGET.
THANK YOU VERY MUCH. GOOD
AFTERNOON SONG OVER THE
CALIFORNIA SCHOOL EMPLOYEES
ASSOCIATION. WE REPRESENT A
QUARTER MILLION CLASSIFIED
SCHOOL EMPLOYEES THROUGHOUT
CALIFORNIA AND OUR MEMBERS ARE
PUBLIC EMPLOYEES, SO THEY DEPEND
ON STATE TAX REVENUES TO EDUCATE
OUR KIDS, FEED THEM, TRANSPORT
THEM AND ENSURE A CLEAN, SAFE
LEARNING ENVIRONMENT. WE REALLY
APPRECIATE THIS INFORMATIONAL
HEARING TO SPOTLIGHT
CALIFORNIA'S TEXT STRUCTURE AND
EXPENDITURES. UM AND WE BELIEVE
THAT CORPORATIONS SHOULD NOT
UNFAIRLY BE ADVANTAGE AT THE
EXPENSE OF OUR PUBLIC SCHOOL
STUDENTS AND PUBLIC EDUCATION.
SO WE HOPE THAT THIS COMMITTEE
CONTINUES TO SCRUTINIZE EVERY
TAX CREDIT AND TEXTED ACTION TO
ENSURE THAT THEY UPHOLD
CALIFORNIA VALUES AND PLACE
CALIFORNIA STUDENTS AND PUBLIC
AND PUBLIC EDUCATION AT THE
FOREFRONT. THANK YOU. HELLO UM
SAM WILKINSON, REPRESENTING
GRACE IN CHILD AND IN CHILD
POVERTY, CALIFORNIA AS WELL AS
THE CALIFORNIA ASSOCIATION OF
FOOD BANKS. UM, THE CALIFORNIA
ALTERNATIVE PAYMENT PROGRAM
ASSOCIATION FRIENDS COMMITTEE ON
LEGISLATION OF CALIFORNIA THE
CHILDREN'S PARTNERSHIP,
CALIFORNIA IMMIGRANT POLICY
CENTER AND FIRST FIVE
CALIFORNIA. UM, THANK YOU ALL
FOR THIS HEARING TODAY, AND FOR
ALL THOSE WHO HAVE TESTIFIED, WE
URGED THE LEGISLATURE TO LOOK AT
ALL AVAILABLE REVENUE OPTIONS TO
CLOSE LOOPHOLES AND ENSURE
WEALTHY CORPORATIONS AND
INDIVIDUALS PAY THEIR FAIR SHARE
, NOT ONLY TO ADDRESS THE
POTENTIAL BUDGET PROBLEM FOR THE
UPCOMING YEAR BUT AS PERMANENT
OPPORTUNITIES SO THAT CALIFORNIA
HAS THE RESOURCES TO FUND
PROGRAMS PROVEN TO BUILD
PROSPERITY. IN ADVANCE OF FUTURE
FREE FROM POVERTY. WE KNOW AS
POSSIBLE INSTEAD OF SPENDING ON
LARGE TAX BREAKS THAT BENEFIT
THOSE WHO HAVE HISTORICALLY HAD
ACCESS TO WEALTH RIGHT TOWARD
PRIORITIZING REFUNDABLE TAX
CREDITS TARGETED CALIFORNIANS
WITH THE LOWEST INCOME SUCH AS
THE CALIFORNIA EARNED INCOME TAX
CREDIT, AND THE YOUNG CHILD TAX
CREDIT HELPS THE CLOTHES THE
STATE'S ENORMOUS RACIAL WEALTH
GAP. IT MOVES US CLOSER TO AN
EQUITABLE CALIFORNIA. WE COME IN
THE BOLD STEPS THIS LEGISLATURE
HAS TAKEN TO BUILD OUT
REFUNDABLE TAX CREDITS AND HOPE
THE SPIRIT OF INVESTING IN
CALIFORNIANS WHO WILL BE
IMPACTED MOST BY THE BUDGET
DOWNTURNS AND WHO HAVE BEEN
HISTORICALLY EXCLUDED FROM
WEALTH. BUILDING OPPORTUNITIES
WILL CONTINUE. THANK YOU. THANK
YOU, MADAM CHAIR MEMBERS OF THE
COMMITTEE. MY NAME IS CRISTINA
BOSS HAMBLETON AND I'M HERE
TODAY REPRESENTING THE ECONOMIC
SECURITY PROJECT ACTION, WHICH
IS AN ORGANIZATION THAT WORKS TO
BUILD AN ECONOMY WHERE ALL
CALIFORNIANS CAN THRIVE AND WE
WANT TO ALIGN OURSELVES WITH THE
COMMENTS FROM MS KITSON. OTHERS
WHO HAVE COME UP HERE. WE THINK
THE BEST WAY TO APPROACH THIS.
IS A SYSTEM'S LENS. AND IF THE
SYSTEM HAS DISPARITIES BAKED
INTO IT, GOING BACK TO THE
ORIGINS OF HOW THESE SYSTEMS
WERE CREATED. IT'S INCUMBENT ON
THE LEGISLATURE TO START VIEWING
HOW WE CAN DISMANTLE AND
RECREATE THESE SYSTEMS SO THAT
AT THE VERY LEAST WE HAVE
FAIRNESS AND A YOU KNOW, ONE
EXAMPLE OF AMONG THE MANY THAT
CAME UP WAS THAT WE SHOULD TREAT
TEXAS BUT EXPENDITURES AS
SPENDING YET WE DON'T SPENDING
ON SOCIAL PROGRAMS. SPENDING ON
EDUCATION GETS SCRUTINIZED EVERY
YEAR THROUGH THE BUDGET
SUBCOMMITTEE PROCESS, AND WE
HAVE TO FIGHT TOOTH AND NAIL TO
INCREASE THAT SPENDING AND THE
MINUTE THE ECONOMY DROPS THAT
SPENDING IS TARGETED FOR
CUTTING. BY THE GOVERNOR AND
FINANCE AND EVERYONE ELSE YET
TAX EXPENDITURES, WHICH ARE ALSO
A FORM OF SPENDING. YOU KNOW,
YOU NEED TWO THIRDS VOTE TO BE
ABLE TO CHANGE THOSE AND GUESS
WHAT? THEY'RE NOT REVIEWED IN
THE BUDGET, AND THEY GENERALLY
UNDER THIS, THE YOU KNOW, RADAR
AND NOBODY REALLY EVEN KNOWS
THAT THEY EXIST. FOR THE MOST
PART. THAT'S A BAKED IN
DISPARITY. THAT IS A SERIOUS
PROBLEM THAT AGAIN LOOKING AT
THIS FROM THE BIG PICTURE, LET'S
START CHANGING OUR SYSTEMS AND
PROCESSES PROCESSES. SO AT THE
VERY LEAST, WE HAVE FAIRNESS.
THANK YOU. ALL RIGHT. THANK YOU.
I WANT TO THANK EVERYBODY THAT
JOINED US TODAY. OUR PANELISTS,
UH, THE AUDIENCE THAT CAME TO
LISTEN TO THIS, UH, REALLY
IMPORTANT SUBJECT AND I WANT TO
THANK OUR STAFF TO THAT WORKED
VERY HARD TO PUT THIS ALL
TOGETHER AND ALL THE MEMBERS
THAT JOINED US TODAY. AND WITH
THAT, UM, THE INFORMATIONAL
HEARING OF THE ASSEMBLY REVENUE
AND TAX COMMITTEE IS ADJOURNED.