BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 1272 - Wolk
Amended: April 5, 2010
Hearing: April 14, 2010 Fiscal: Yes
SUMMARY: Enacts Reforms to Future Bills Adding Tax Credits
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
THIS BILL provides that any bill that enacts a credit
against the Personal Income Tax Law or Corporation Tax Law
for taxable years beginning on or after January 1, 2011,
that the measure contain:
Specific goals, purposes, and objectives
that the tax credit will achieve
Detailed performance indicators for the
Legislature to use when measuring whether the tax
credit met its specific goals, purposes, and
objectives.
Data collection requirements to enable
the Legislature to determine whether the tax
credit is meeting or failing to meet its detailed
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performance indicators. The requirements shall
include specific data to be collected and
remitted, and the specific taxpayers, state
agencies, or other entities required to collect
and remit data.
A five-year sunset.
THIS BILL also makes findings regarding tax
preferences generally and their current fiscal impact on
federal and state governments.
FISCAL EFFECT:
The Franchise Tax Board estimates that bill does not
have an impact on revenue because, by itself, it would not
affect revenue. It may be that the enactment of this bill
will lead to the adoption of legislation in the future
which have smaller revenue losses than would have occurred
in the absence of this bill being enacted. But any revenue
increase from that (potential) future legislation would be
wholly attributed to that future legislation, and not to
this bill.
COMMENTS:
A. Purpose of the Bill
According to the Author, "Today's public finance
system in California requires major reform. While I have
pursued changing our budgeting system to apply performance
measurements for spending programs, I am trying to do the
same with SB 1272, which applies a performance-based
methodology to future tax expenditures enacted by the
state. There is no good reason not to evaluate tax
expenditure programs with the same rigor that we use when
judging spending decisions, especially when California's
tax preference portfolio now exceeds $41 billion, equal to
half of our total revenue. While we cannot change existing
tax preferences, we can at least start keeping better track
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of future tax preferences."
B. Tax Preferences
Tax preferences have grown in federal and state
governments, bringing additional scrutiny during these
times of fiscal stress. As noted in the findings:
(a) Government at all levels enact tax preferences to
promote equity among taxpayers and enhance economic
growth in a way that is inexpensive to administer and
provide direct benefits to taxpayers.
(b) National and state public finance experts
recommend that tax preferences be evaluated alongside
direct spending programs, as both are public
initiatives meant to accomplish specified goals.
(c) Revenue losses attributable to federal tax
preferences exceed any other category of federal
spending, including defense, Medicaid and Medicare,
Social Security, debt service, or discretionary
spending
(d) California now foregoes more than $41 billion in
revenue from tax preferences, according to the
Department of Finance.
(e) Many current tax preferences contain neither
sunset provisions, nor goals and objectives to measure
the performance of the tax preference.
(f) Many current tax preferences neither require
taxpayers to submit data demonstrating the tax
preference's effectiveness, nor for state agencies to
collect and send data to the Legislature to evaluate
the tax preference.
(g) The Legislature should apply the same level of
review and performance measurement that it applies to
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spending programs to tax preference programs
C. Reach Out and Touch Someone
SB 1272 applies to tax expenditures enacted on or
after January 1, 2011 by applying specified requirements,
including a mandatory five-year sunset. SB 1272 could
apply these requirements to existing tax preferences, but
doing so in a way that would restrict the eligibility of a
taxpayer to claim a credit would trigger the 2/3 vote as a
tax increase. Additionally, SB 1272 applies only
contingently to forthcoming measures; a future Legislature
could waive the section of law put in place by SB 1272, as
this Legislature cannot affirmatively bind future ones
under County of Los Angeles v. State of California (1984)
153 Cal.App.3d 568, 573.
D. Amendments Needed
Committee Staff in consultation with Franchise Tax
Board recommends the following amendments:
Instead of referring to bills that enact tax
credits effective for taxable years on or after
January 1, 2011, the measure should refer to bills
introduced on or after January 1, 2011
The measure applies to measures which "authorize a
credit," but should instead refer to bills
"authorizing a new credit."
To clarify the intent of the measure, the measure
should include specific requirements for baseline data
prior to enactment of the credit; with data to be
collected during the years the credit is effective to
measure the change in the performance indicators.
The sunset provisions should be amended to provide
that the credit endures for five taxable years instead
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of five years from the enactment date, with a repeal
date that is the second January 1st after the
operative period.
Support and Opposition
Support:California Labor Federation (sponsor);
California Professional Firefighters; California Nurses
Association; Western Center on Law and Poverty; American
Federation of State, County and Municipal Employees,
AFL-CIO
Oppose:California Taxpayers' Association
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Consultant: Colin Grinnell