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Responsible Governance – Tax Break Bills Vetoed!

Why are our tax systems so complex?  One key reason is that lawmakers keep adding to them and rarely delete anything.  Also, items added for temporary purposes are often renewed (rather than dropped or made permanent). Also, we often have numerous rules serving similar purposes (such as for higher education spending or savings).

Well, on October 10, 2015, California Governor Brown, said “NO” to nine tax bills presented to him.

His reason was that they might bust the budget given other budget issues.  Each of the nine would have either added or expanded an existing or expired provision or added something new.
One additional benefit beyond curtailing complexity is that perhaps his action will remind lawmakers and taxpayers that another type of tax legislation are bills that reduce or eliminate tax deductions, exclusions, or credits and lower tax rates.  Such proposals also help a tax system to be more equitable, simple, efficient and neutral!

What happened – On 10/10/15, Governor Brown vetoed nine bills that either created or expanded a tax credit or exclusion or exemption. He stated that the budget is only “precariously balanced” and that “without the extension of the managed care organization tax” that he “called for in special session, next year’s budget faces the prospect of over $1 billion in cuts.” Thus, he vetoed the nine bills which he noted would make it more difficult to balance the budget. Per Governor Brown: “Tax credits, like new spending on programs, need to be considered comprehensively as part of the budget deliberations.” [That’s also something we don’t hear lawmakers say often enough!]

The nine bills:

• AB 35 – low-income housing credit expansion

• AB 88 – sales tax exemption for energy or water efficient home appliances

• AB 99 – CODI exclusion for 2014 for principal residence debt

• AB 428 – 30% credit for certain seismic retrofit work

• AB 437 – research credit for qualified small businesses

• AB 515 – expand credit for certain food donations

• AB 931 – modify new employment credit to include certain Veterans

• SB 251 – credit for eligible access expenditures

• SB 377 – allow sale of certain housing credits

How Often Do California Governors Say No? The California Senate Office of Research updated an earlier report summarizing how often in the past California governors have vetoed legislation. Per this report dated 10/12/15, as of that date, Governor Brown has vetoed 14.13% of bills. This doesn’t surpass his 2011 record of 14.37% though. In the past five years, the governor has vetoed almost 13% of the 4,777 bills presented to him. The record of vetoes is held by Governor Deukmejian who vetoed 2,298 bills during his eight years in office. The report has data back to 1967.

What do you think?

Original Post By:  Annette Nellen

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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