BILL ANALYSIS �
AB 1597
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Date of Hearing: April 9, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 1597 (Cook) - As Amended: March 20, 2012
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal income tax: credit: loss of income
SUMMARY : Allows a credit, under the Personal Income Tax (PIT)
Law, equal to 10% of a taxpayer's "loss of income."
Specifically, this bill :
1)Defines "loss of income" as a reduction in adjusted gross
income (AGI) in the current taxable year from the preceding
taxable year of 10% or more.
2)Provides that the credit shall only be allowed if AGI for the
taxable year is less than:
a) $80,000 if single; and,
b) $160,000 if married.
3)Caps the credit amount per taxable year at:
a) $300 for single individuals or married individuals
filing a separate return; and,
b) $600 for married couples filing a joint return.
4)Provides that the credit shall only be allowed if the "loss of
income" is not the result of:
a) A dismissal or termination for cause; or
b) A finding of guilt in a criminal proceeding or a pending
criminal investigation.
5)Provides that if the credit amount exceeds the taxpayer's "net
tax", the excess may be carried over to reduce the "net tax"
in the following year, and succeeding nine years if necessary,
until the credit is exhausted.
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6)Authorizes the Franchise Tax Board (FTB) to prescribe
regulations necessary to administer the credit.
7)Applies to taxable years beginning on or after January 1,
2012.
8)Takes immediate effect as a tax levy.
EXISTING LAW : Allows various tax credits under the PIT Law.
These credits are generally designed to encourage socially
beneficial behavior or to provide relief to taxpayers who incur
specified expenses.
FISCAL EFFECT : The FTB estimates that this bill would result in
General Fund revenue losses of $900 million in fiscal year (FY)
2012-13, $800 million in FY 2013-14, and $800 million in FY
2014-15.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
AB 1597 will help Californians feel more financially secure
about taking lower paying jobs�,] which will help alleviate
some of the burden our State's 11% unemployment rate has
put on the �Employment Development Department].
2)Opponents of this bill note the following:
This is a novel bill, but is unnecessary as taxpayers
already pay less tax when their income declines. If income
declines substantially, the taxpayer gets the benefit of
being in a lower bracket and paying proportionately less in
tax in a progressive system. So your implicit support of
progressivity is appreciated, since the existence of such a
system provides a sufficient tax reduction when income
declines. Your bill would also be particularly
destabilizing of the state budget, because declines
occurring during a recession would become exaggerated,
causing even further cuts.
3)The FTB notes the following implementation and policy concerns
in its staff analysis of this bill:
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The bill uses federal AGI thresholds established by marital
status without �regard] to filing status to determine if a
taxpayer is eligible for the credit. It is unclear how the
federal AGI threshold would be used to limit eligibility
for the credit for married individuals filing separate
returns. To alleviate confusion among taxpayers, it is
recommended that the bill be amended with AGI thresholds
established by filing status, instead of marital status.
The bill bases the credit on a taxpayer's reduction in AGI
from the prior year. It is unclear how the joint AGI of a
jointly filed return would be allocated to the two
individual filers for the loss calculation when there is a
change in filing status from one year to the next. To
alleviate confusion among taxpayers, it is recommended that
the bill be amended to address how a change in filing
status would impact the allowance of the credit.
The bill allows a credit in the amount of $300 or $600,
based on filing status. The bill fails to identify all
filing statuses, such as head of household and surviving
spouse. To avoid disputes between taxpayers and the
department, it is recommended that the bill be amended to
address all filing statuses and their corresponding credit
amounts.
The bill lacks a sunset date. Sunset dates generally are
provided to allow periodic review of the effectiveness of a
credit by the Legislature.
4)Committee Staff Comments:
a) Individuals who were never unemployed will be eligible
for the credit . As noted above, this bill seeks to
alleviate some of the burden that California's unemployment
rate has put on the Employment Development Department by
helping unemployed Californians feel more financially
secure about taking lower-paying jobs. However, there is
no language in this bill that explicitly limits the
applicability of the credit to formerly unemployed
individuals. Instead, this bill allows any individual -
employed, unemployed, or retired - who has experienced a
"loss of income" of 10% or more, from one tax year to the
next, to be eligible for credit.
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b) Credit's retrospective applicability . This bill would
allow a credit for each taxable year beginning on or after
January 1, 2012. It is difficult to conceptualize how a
retrospective credit will further the credit's purpose
given that the very action the credit seeks to encourage,
the acceptance of a lower paying job, will have taken place
before the credit's existence. Committee staff recommends
an amendment to make the credit prospective.
c) Credit amount . This bill provides individuals or
couples who have experienced a loss of income of 10% or
more, from one tax year to the next, a tax credit equal to
50% of that loss, up to $300 for a single filer or $600 for
joint filers. The Committee staff questions whether this
capped credit will be sufficient to prompt an individual to
accept a lower paying job in lieu of filing for, or
continuing to receive, unemployment benefits. Unemployment
benefits could conceivably provide an individual with more
financial relief than a single tax credit of a few hundred
dollars.
d) Sunset date . This bill lacks a sunset date to allow
periodic legislative review of this tax expenditure.
Committee staff recommend an amendment to add a sunset
date.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
California Tax Reform Association
Analysis Prepared by : Rosailda Perez / M. David Ruff / REV. &
TAX. / (916) 319-2098