BILL ANALYSIS Ó
AB 931
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Date of Hearing: May 4, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 931
(Irwin) - As Amended April 6, 2015
2/3 vote. Tax levy. Fiscal committee.
SUBJECT: Taxation: credit: hiring
SUMMARY: Revises the definition of a "qualified full-time
employee" to include a veteran who separated from service in the
United States Armed Forces within 36 months preceding
commencement of employment, as specified. Specifically, this
bill:
1)Revises, under the Corporation Tax (CT) and the Personal
Income Tax (PIT) Law, on or after January 1, 2016, the
definition of a "qualified full-time employee" to include a
veteran who separated from service in the Armed Forces within
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36 months preceding commencement of employment with the
qualified taxpayer.
2)Takes effect immediate as a tax levy.
EXISTING LAW:
1)Allows, under the CT and the PIT Law, a New Employment Credit
to qualified taxpayers that hire a qualified full-time
employee, have an overall net increase in employment, and pay
qualified wages attributable to work performed by a qualified
full-time employee in a designated census tract or former
Enterprise Zone. The qualified taxpayer must receive a
tentative credit reservation from the Franchise Tax Board
(FTB) for the qualified full-time employee.
2)Provides that a qualified full-time employee must meet at
least one of the following conditions upon commencement of
employment:
a) Unemployed for six months immediately preceding
employment;
b) Veteran separated from the Armed Forces in the preceding
12 months;
c) Recipient of the Earned Income Tax Credit in the
previous taxable year;
d) Ex-offender convicted of a felony; and,
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e) Current recipient of California Work Opportunity and
Responsibilities to Kids (CalWORKS) or general assistance.
FISCAL EFFECT: The FTB estimates General Fund revenue loss of
$20,000 in fiscal year (FY) 2015-16, $150,000 in FY 2016-17, and
$250,000 in FY 2017-18.
COMMENTS:
1)Author's Statement : The author has provided the following
statement in support of this bill:
AB 931 will expand the timeframe for Veterans who have
separated from active duty to be eligible for a hiring tax
credit which makes them a more attractive hire for
potential employers. This bill will also increase the
total amount of veterans in California who are included in
this group which will help employers identify more
unemployed veterans.
California is home to a growing population of over 1.8
million veterans. As two overseas operations are
concluding, the employment needs for veterans in California
will continue to increase. According to a Congressional
Joint Economic Committee report, the unemployment rate for
California's veterans continues to be substantially larger
than the national average. The state's unemployment rate
is also higher for post-9/11 veterans.
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There is not yet sufficient tax data on the effectiveness
of the New Employment Credit because it began on January 1,
2014. However, based on early project based on tax
reservation the hiring tax credit appears to be going
underutilized. Less than 50 employers in the state have
applied for tax reservation for hiring a veteran eligible
for the tax credit.
AB 931 will address this by allowing more veterans to be
hired under the New Employment Credit. This tax credit also
ensures that those hired are paid at least 150% of the
minimum wage and for no less than 35 hours per week. This
bill will increase incentives for employers to connect
Veterans with quality, high-paying jobs.
2)Arguments in Support : According to the Council of California
Goodwill Industries, "[t]he employment needs for veterans will
continue to increase in California. By increasing, from 12 to
36 months, the allowable timeframe for qualification for the
New Employment Credit, more veterans will be desired
candidates for employers. Veterans hired under this credit
will be assured stability in a job that will pay at least 150%
of the minimum wage and no less than 35 hours per week."
3)What is a "tax expenditure" : Existing law provides various
credits, deductions, exclusions, and exemptions for particular
taxpayer groups. In the late 1960s, U.S. Treasury officials
began arguing that these features of the tax law should be
referred to as "expenditures," since they are generally
enacted to accomplish some governmental purpose and there is a
determinable cost associated with each (in the form of
foregone revenues). This bill would modify the existing
hiring tax credit program by expanding eligible veterans that
qualify for the program.
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4)How is a tax expenditure different from a direct expenditure? :
As the Department of Finance notes in its annual Tax
Expenditure Report, there are several key differences between
tax expenditures and direct expenditures. First, tax
expenditures are reviewed less frequently than direct
expenditures once they are put in place. Second, there is
generally no control over the amount of revenue losses
associated with any given tax expenditure. Finally, it should
also be noted that, once enacted, it generally takes a
two-thirds vote to rescind an existing tax expenditure absent
a sunset date. This effectively results in a "one-way
ratchet" whereby tax expenditures can be conferred by majority
vote, but cannot be rescinded, irrespective of their efficacy,
without a supermajority vote.
5)Background : AB 93 (Committee on Budget), Chapter 69, Statutes
of 2013, phased out and replaced the California Enterprise
Zone tax credits with three new economic development
incentives: (a) hiring tax credit, (b) partial sales and use
tax exemption, and (c) a negotiated incentive administered by
the Governor's Office of Business and Economic Development
(GO-Biz). The new hiring tax credit incentivizes additional
hiring of certain individuals within specified geographic
areas of California. In general, a business is allowed to
claim the hiring tax credit for wages paid to a qualifying
employee performing work in an economic development area or
certified census tract. As a way of encouraging the hiring of
veterans, the hiring tax credit specifically provides that a
taxpayer may claim a credit for hiring a veteran who has
separated from service in the Armed Forces within the last 12
months. Despite the incentive, only 35 companies have claimed
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a credit for hiring a veteran<1>. The author hopes to address
the underutilization of the hiring tax credit for veterans by
increasing the time a veteran has separated from the Armed
Forces from 12 to 36 months.
6)Do Hiring Tax Credits Work ? In previous years, some have
advocated job creation tax credits as a means of revitalizing
the struggling economy. The question, however, is whether
such credits actually work, and whether they are an
appropriate tool in light of substantial declines in
unemployment over the last five years. Daniel Wilson,
assistant director of the Center for the Study of Innovation
and Productivity at the Federal Reserve Bank of San Francisco,
attempted to answer this question. In a paper co-authored
with Robert Chirinko of the University of Illinois at Chicago,
Wilson examined the period between January 1990 and August
2009 and found that among states where employers could qualify
for credits immediately after enactment of the credit
legislation there was a slight employment increase of 0.12%.
These findings suggest that hiring credits, at least at the
state level, have some impact but appear to be very a blunt
tool for stimulating job growth. Additionally, it is unclear
if the hiring tax credit provides an incentive or reward. The
state's unemployment rate has been steadily declining over the
last few years to a rate of 6.5%. An improved economy is more
likely to lead to additional hiring of all individuals in all
industries, irrespective of state incentives such as a hiring
tax credit. As a result, this hiring tax credit could
potentially provide an employer with a windfall for actions
that would have already taken place because of improvements in
the economy and job market.
---------------------------
<1> The FTB has provided information indicating that only 35
companies have requested a tentative new employment tax credit
reservation for a veteran. However, FTB's research department
also notes that most of the companies applying for reservations
have been marking all of the categories. As such, the data may
not be representative of the actual number of employees that
qualify as veterans.
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7)Veterans Do Not need to be Unemployed : As noted above, for an
individual to be considered a "qualified full-time employee,"
the individual must be, among other things, a veteran who
separated from service in the Armed Forces within the
preceding 12 months. The author and supporters of this bill
focus on the unemployment rate of veterans as the reason for
this bill; and although there is a provision incentivizing the
hiring of individuals who have been unemployed for the last
six months, a veteran is not required to be unemployed upon
commencement of employment. If the goal of this bill is to
help unemployed veterans find employment, the author may wish
to modify the language to specifically target unemployed
veterans.
REGISTERED SUPPORT / OPPOSITION:
Support
Council of California Goodwill Industries
Opposition
None on file
Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916)
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319-2098