I was struck by an excellent column by Timm Herdt of the Ventura Star. He posed a very insightful question, “Are efforts to better collect taxes that are already owed the political equivalent of actually raising taxes, or are they designed to ensure fairness for those who are already paying their full share?” I say the answer is they are tax increases, but so small as to be inconsequential. Fairness is pursuing individuals who falsify their tax returns and purposely do not pay. Raising other people’s taxes is not fairness.
Herdt focuses on several issues, like the proposed “Amazon tax” that would require internet retailers with affiliates in California to collect sales tax on behalf of the state for sales that they do not make. Another is a proposal to assess penalties on high-income taxpayers who are denied eligibility for certain tax credits. Under the bill (SBX8 32), those who unsuccessfully claim credits that defy “reasonable basis” in an “excessive amount” – both undefined terms – face a 20% penalty of the amount claimed, if the taxpayer makes over $250,000 a year. At the same time, the bill would allow people who short-sell their homes to have the difference between their loan balance and sale amount not count as income. According to the legislative analysis, even with the higher penalty for rich people, the proposal is a net revenue loser.
The common element between these is the majority Democrats identify people they do not like and then go after them. They know the electorate is angry and think if they can project that anger onto others they will get a break with public opinion. That is leadership of a certain kind, but not what is needed to balance the budget.
The Amazon tax is hyped as a way to close the tax gap and make fairer the tax treatment of California retailers. Both goals are unattainable with this approach. The BoE already collects 96% of the overall sales and use tax due. The Board brings in around $44 billion in sales tax collections every year. The Amazon proposal is estimated to bring in only $107 million a year more, or two-tenths of one percent. This estimate assumes Amazon does not fire their California associates, as they did to their New York affiliates when New York passed the same law. Amazon simply hired new associates in New Jersey. New York ended up with no new revenue and more people without jobs. There are a lot of under-employed people in Nevada who would happily service California consumers. As I have stated many times, the way to mitigate the Amazon tax inequity is to lower the sales tax enough so the difference between shipping to California and paying sales tax is more equal.
The voters want the Legislature to get serious. Legislator approval rating is diving. The proposals highlighted here neither increase fairness for other taxpayers, nor bring in anywhere close to the revenue needed to close the deficit. These proposals are tinkering on the margins in ways that have no practical effect but appeal on an emotional level to some. That is not “getting it done.”
Here is a link to a relevant news story.