California Moves To Force Businesses To Give Half Of Tax Cut To The State

jonathanturley

8 years ago

images One of the elements to the recent tax bill that drew considerable opposition was the move to a neutral tax system that no longer allowed for the writing off of state taxes. However, there is a valid argument for such an approach since many citizens in low tax states do not benefit to the same degree. Indeed, those taxpayers have complained that they are effectively subsidizing taxpayers in states like New York and California even though they often make considerably less. I have come to support the approach for a different reason. It forces local politicians to bear the true costs of tax hikes since they can no longer dismiss objections by saying that their increases will simply be recovered as a deduction on federal taxes. Now, however, California legislators have pushed legislation to force businesses to give back half of their federal tax savings.

Assemblymen Kevin McCarty (D-Sacramento) and Phil Ting (D-San Francisco) are seeking to create a tax surcharge on California companies making more than $1 million to capture half of the federal tax savings. They notably are not attempting to do the same for citizens.

I am admittedly a critic of high tax approaches in states like New York, Illinois and California, I still view this as better than the older system where politicians could pretend that tax increases were some type of funny money that did not really count. Now at least California is imposing this tax directly. If businesses are tired of the hikes, they can move to lower tax states or they can accept the tax increases as part of maintaining a high quality of life in the state.

As a constitutional amendment, the bill would require approval from two-thirds of the Legislature to pass, a difficult hurdle now that Democrats have lost their supermajority. If passed and signed by Gov. Jerry Brown, it would then go to voters for final approval.

Democrats lost their supermajority following resignations of two Assembly Democrats, Matt Dababneh of Encino (Los Angeles County), and Raul Bocanegra of San Fernando Valley (Los Angeles County) amid sexual misconduct allegations. Another Assembly Democrat, Sebastian Ridley-Thomas of Los Angeles, resigned citing health issues. In the Senate, Democrat Tony Mendoza of Artesia (Los Angeles County) is taking a leave of absence pending an investigation into sexual misconduct allegations.

California Democrats have been exploring ways to help those in the state who could end up paying higher federal taxes next year under the Republican tax overhaul.

The GOP overhaul caps state income taxes and local property tax write-offs on the federal income tax return at $10,000, a move expected to hurt high-local-tax states such as California, where the average state and local tax write-off in 2016 was $22,000.

State Senate President Pro Tem Kevin de León introduced legislation this month that would allow Californians to get around the state and local tax cap with a voluntary donation to a charitable fund created by the state of any amount of owed taxes above $10,000. That donation — in lieu of taxes — would allow donors to write off the gifts on their federal tax returns.

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