Tax Credits and the Budget Debate

June 27, 2008 · Posted By John Myers · Filed Under CA Budget, Taxes 

Budget discussions this year keep coming back to the issue of tax credits and tax loopholes, and closing some of each to help resolve the state's $15 billion shortfall in the fiscal year that begins on Tuesday.

There are more than 300 tax credits on the books, valued at about $50 billion. But can a budget solution really hinge on removing tax credits?

That's one of the questions examined in my report on this morning's edition of The California Report. And the answer seems to be: probably not.

The big problem is the size and scope of tax credits, exemptions, and deductions on the books. To get the most financial bang, lawmakers would have to go after tax savings laws that are enormously popular. But if lawmakers choose tax credits that aren't widely popular, then they have to erase a heck of a lot of them to make a real fiscal impact.

The discussion also highlights an enormous problem surrounding tax credits and exemptions: they can be placed on the books through a simple majority vote in each house of the Legislature, but taken off the books only with a supermajority vote... becasue such an action is considered a tax increase.

You can hear this morning's story below (a couple of minutes in to the newscast).

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