BILL ANALYSIS
AB 2171
Page 1
Date of Hearing: May 12, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2171 (Calderon) - As Amended: April 27, 2010
Policy Committee: Revenue and
Taxation Vote: 6-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill provides that tax expenditure (credits, deductions,
exclusions or exemptions allowed in the revenue and taxation
code) enacted beginning in 2011 will be contingent on the
passage of annual legislation establishing the total amount of
the tax benefit that can claimed by individual taxpayers (up to
the amount authorized in the original statute).
FISCAL EFFECT
1)Potentially significant administrative costs (eventually
totaling over $1 million) to Franchise Tax Board and Board of
Equalization for revising returns and notices, and for
additional recordkeeping, collections activity, audits, and
communications with taxpayers.
.
2)Potential increases in future revenues, to the extent the bill
permits future legislatures to constrain the revenue loss from
new deductions, exclusions, and credits. The magnitude of
these increases would depend on several factors, including the
extent to which the limitations cause future legislatures
wishing to provide tax relief to rely more on rate reductions
(not subject to annual review) rather than tax expenditures.
COMMENTS
1)Background . California's tax system contains numerous tax
credits, deductions, exclusions, and other tax benefits that
are designed to achieve various policy objectives, tax relief
for targeted groups (examples include the food and
prescription drug exemption from the sales tax and the
AB 2171
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personal income credits for child adoption, childcare, the
dependents) or to provide incentives for taxpayers to
undertake various activities (examples include accelerated
depreciation of new equipment, the business hiring credit,
film credit, the research and development credit).
2)Rationale . The author states that the measure is intended to
provide accountability for new tax expenditures to ensure that
the state has the necessary resources to continue providing
these tax benefits. Proponents of such limitations argue that,
unlike direct expenditures which are subject to annual budget
scrutiny, tax expenditures can be passed with a majority vote,
and once in place, are not subject to annual review of their
costs and effectiveness. Moreover, once in law, ineffective
tax expenditures cannot be repealed without two thirds vote.
3)Opponents (including the California Chamber of Commerce and
California Taxpayers' Association) argue that imposing
limitations on tax expenditures would create uncertainty
regarding long-term planning. They assert that making tax
expenditures subject to annual legislative action would make
tax incentives ineffective in attracting jobs to California.
4)Administrative issues . Both FTB and BOE indicate that this
bill would present major administrative challenges, and, even
if these challenges could be overcome, the bill would result
in substantial new costs for recordkeeping, revisions to tax
forms, notices, and taxpayer communications.
Also, although there are significant differences between the
two systems, California generally conforms to federal income
tax law. The vehicle for conformity has traditionally been
large conformity bills that contain provisions both raising
and lowering revenues. Placing limitations on all tax
expenditures could seriously hamper efforts to maintain
conformity with the federal code, at a significant cost to
both taxpayers and the state.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081