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`Close Tax Loopholes:’ Fighting Words

By sgeissinger
Thursday, December 27th, 2007 at 8:53 pm in General.

By Steve Geissinger, MediaNews Sacramento Bureau

They’re so politically sacred, there hasn’t even been a formal name for $50 billion annually in — TAX BREAKS. Now blandly dubbed “tax expenditures,” they total more than three times the current, persistent state deficit and nearly half the entire general-fund budget.

Half.

And ending tax breaks can be restated as hiking taxes — read as, “political death.” (Read sister paper Torrance Daily Breeze’s editorial.) But a nonpartisan government think tank says end some tax breaks to help fix the structural deficit. Some private experts agree.

A very unscientific reader poll in a sister paper, the Contra Costa Times, says — surprise! — 42 percent agree with closing loopholes. Reader comments and phone calls have been passionate on both sides of the issue. For a time, it was the most e-mailed story. Another sister paper, the Los Angeles Daily News posted the story on its Sausage Factory political web site for comments. The story can be read in sister paper San Jose Mercury News.

Former Democratic Treasurer Phil Angelides, running for governor in 2006 against no-tax-hikes Republican Gov. Arnold Schwarzenegger, was the last one to make a big deal out of what liberals attack as tax loopholes and conservatives praise as economic incentives.

(By the way, whatever happened to Phil?)

When Angelides started talking about messing with tax breaks, Republicans warned they’d actually be tax hikes. Democrats dove for cover. But they “boldly” inserted language in the last budget telling independent, nonpartisan Legislative Analyst Liz Hill to study the tax-free cards the state’s been handing out for decades to certain interests.

Lawmakers on both sides of the aisle respect her, though may not agree with her suggestions for political or other reasons. Her office runs sort of like a computer program that crunches numbers and considers policy from a human but apolitical standpoint.

Hill dutifully provided a summary of recently enacted tax expenditures. Most were small and related to disaster losses. She assessed fuel-production tax loopholes but chose the state’s largest tax breaks to thoroughly analyze – mortgage interest deduction from personal income taxes. (At the same time, the governor’s Finance Department was required to add up tax breaks, including those for corporations, since nobody had dared to keep track before. The department found $50 billion-plus a year, and growing.)

In her report, Hill said what made sense to her: Time to drop the mortgage interest deduction, since it does the poor and middle-class little good, or remake it into a credit that helps the needy. The fat federal mortgage interest deduction would still be there, after all.

From Schwarzenegger’s office to the Legislature, nobody’s said tax breaks are off the table. Independent government, tax and housing experts have agreed Hill’s idea has some merit.

But nobody in power has really said it’s on the table for discussion, either.

At the same time, though, the deficit-plagued state has mostly run out of sensible but painful cuts, borrowing options and fiscal gimmicks.

The awful reality: The state is locked into spending more than it gets in revenue.

Everybody says something has to be done.

Are tax loophole closures less painful than tax hikes?

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  • http://www.comcast.net Glen Smith

    Time to fish or cut bait guys. They may not be outright tax hikes but they look like the only way out to me.

  • Gary Ault

    The mortgage deduction is the sacred cow of the middle class, no it does little to help the poor, but what does. It is time we protect the middle class from the chopping block, we are becoming an endangered species in this state. Reduce spending and raise the sales tax by 1 cent, it is the fairest tax of all since everyone in California along with anyone visiting and spending a buck will pay. Any new laws that were signed by the Governor this year that cost money should be repealed. Reduce our Legislature to part-time like most of the country, this way they make less and don’t get to pass all that worthless legislation that ends up costing the taxpayers Billions.

  • jh

    Bull crap…..make these jerks spend less money and the only way to do that is make sure they don’t get as much.The more you give them the more they spend and if you did increase taxes they would soon have another deficit from expanding upon or creating new programs to line their pockets. Ever wonder how so many in public office become millionaires and that is the only job they have ever had ? A deficit only exists because politicians have decided they want to spend an x amount of money and don’t have it….want should not be confused with need.We are the boss here and we need to act like it. All of us have to find a way to live within our means and our government should have to also. They will parade out some program that involves kids that is in danger of being cut (they decide what gets cut by the way so they pick a kids program instead of something they want not need) everyone ends up feeling guilty and passes some new tax to fix this…that same program ends up with other things attached to it that have nothing to do with kids and it starts all over again…..I don’t care if you are democrat,republican or something else….every one of these people do this to us then point fingers of blame at each other…then later go out to dinner together and laugh at us arguing with each other about which party is screwing us over when the answers is always…D: all of the above