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.
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?