BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SBX6 7 - Denham
Amended: May 3, 2010
Hearing: May 12, 2010 Tax Levy Fiscal: Yes
SUMMARY: This bill provides California employers a 25% tax
credit for wages paid to qualified veterans.
EXISTING LAW provides various tax credits designed to
provide incentives for taxpayers that incur certain
expenses, such as child adoption, or to influence behavior,
including business practices and decisions, such as
research and development credits and Geographically
Targeted Economic Development Area credits. The
Legislature typically enacts such tax incentives to
encourage taxpayers to do something but for the tax credit,
they would otherwise not do.
EXISTING LAW allows a New Jobs credit enacted in 2009
to qualified employers equal to $3000 for each net increase
in qualified full-time employees hired during the taxable
year. The credit is limited to small businesses, as
defined, and is capped at roughly $400 million for all
taxable years.
EXISTING FEDERAL LAW, under the Work Opportunity
Credit program, provides that an employer may qualify for a
tax credit of up to $9,000 if the employee is a member of a
designated target group including qualified veterans
receiving Food Stamps or qualified veterans with a service
connected disability, as specified.
SBX6 7 - Denham
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THIS BILL provides a tax credit of 25 percent of the
qualified wages, not to exceed $6,000, paid to employees
who are qualified veterans beginning on or after January 1,
2010.
Defines "qualified veteran" as an individual who
satisfies all of the following:
1. Is a member of the Armed Forces of the
United States who has been honorably discharged
within the five calendar years prior to
employment?
2. Received unemployment compensation within
California for no less than four weeks during the
12 calendar months before the date of employment,
and
3. Is employed by the taxpayer for not less
than 120 hours during the calendar year in which
the credit is generated.
Specifies that any deduction otherwise allowable for
qualified wages shall be reduced by the amount of the
credit allowed under this bill.
FISCAL EFFECT:
The Franchise Tax Board (FTB) states that SBX6 7 would
require a calculation for the credit that would require a
new form or worksheet to be developed. As a result, this
bill would impact the FTB's printing, processing, and
storage costs for tax returns. The additional costs have
not been determined at this time.
The FTB estimates that this bill would result in a
revenue loss of $170 million in fiscal year (FY) 2010-11,
$190 million in FY 2011-12, and $200 million in FY 2012-13.
SBX6 7 - Denham
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COMMENTS:
A. Purpose of Bill
According to the author, "California faces record
unemployment rates of 12.4 percent. Our veterans are
returning home to tough economic times in California.
California has approximately 30,000 veterans per year
returning home from service, which is more than any other
state. Veterans of the Iraq and Afghanistan wars face tough
unemployment rates of 18.3 percent nationally. Creating
jobs to address our budget crisis and employing our
returning veterans must be a priority in California. With
the high level of unemployment, veterans must decide to
reenlist or move to another state to look for unemployment.
SBX6 7 would be a strong incentive for businesses to
take the leap of hiring another employee. At the same time,
it opens the doors for veterans who have returned home
after their service. SBX6 7 will create jobs which will put
money back into the economy helping to end our state budget
crisis."
B. Background: Tax Expenditures
The Department of Finance defines a tax expenditure as
a "deduction, exclusion, exemption, credit, or any other
tax benefit as provided by the state." When policymakers
institute new tax expenditures, the state agrees to forego
tax revenues in the hopes of providing increased equity in
the tax system or seeking to change private investment
behavior. This bill would enact a tax expenditure in the
form of a hiring credit, designed to encourage the
employment of veterans.
As California faces another fiscal imbalance,
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policymakers are increasingly interested in the state's tax
expenditures, their goals and objectives as well as their
efficacy. California foregoes approximately $50 billion in
revenue each year due to tax expenditures. These range from
the exclusion from income for pension contributions and
social security benefits to subsidies for other types of
economic behavior deemed preferable by the Legislature,
such as the mortgage interest deduction to spur
homeownership, the research and development credit to
stimulate high-paying jobs and new exciting consumer
products and services. Tax expenditures evoke passionate
and complicated debates, chiefly regarding whether state
legislative action to forego tax revenues from specified
taxpayers provides superior benefits than commensurate
direct spending programs or general tax reductions
C. Are Hiring Credits Effective?
SBX6 7 seeks to expand opportunities for hard-to-hire
individuals by allowing a tax credit for employers to hire
veterans. The state already invests toward these goals,
such as job-training and welfare to work programs. Are
these programs effective? Why or why not? How will SBX6 7
complement existing efforts, or should it supplant these
programs because tax credits will better accomplish public
goals? The Committee may wish to consider the efficacy and
efficiency of existing efforts of federal, state, and local
agencies to assist the targeted population obtain
employment before further straining its finances by
allowing a credit that may be duplicating current programs.
Quite different from direct spending measures, the
Legislature may only limit, reduce, or eliminate tax
credits by 2/3 vote of each house of the Legislature.
Support and Opposition
Support:None received.
SBX6 7 - Denham
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Oppose:None received.
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Consultant: Meg Svoboda