A state Senate report finds that "some California tax breaks are acting as blank checks, costing the state billions of dollars more than anticipated when they first were put in place..." From the report:
"How could the costs to the state escalate so far beyond expectations?" the report asks. "One explanation is that those who prepare estimates at the state's tax boards must use economic and demographic data that is already three years old. Economic forecasting is by nature an inexact science. Some tax expenditures have been passed at the last minute to cement deals on the state budget, giving analysts little time to assess the potential impacts on the state treasury. "But other factors play an even larger role. Taxpayers change their behavior to maximize the financial advantage of tax breaks, moving into an enterprise zone, for instance, or figuring out ways to increase reported revenue generated outside of California, reducing their in-state tax burden. Consider this statistic: California accounts for about 12 percent of the national economy. Yet, in 2008 state tax returns, multi-state companies report only 5.4 percent of total national sales in California.
Reducing or even eliminating many of these incentives would seem to make sense, but elected officials are afraid of alienating California businesses. (You also find this at the federal and local levels.) Even now, Gov. Brown is pushing a package of complex tax swaps aimed at boosting the economy. As we noted earlier in the week, patchwork tax fixes seldom do much good. Capitol Alert has more.