The Center of the California Enterprise Zone Information Universe


Loophole?

A pair of editorials question the notion that tax credits, such as the Enterprise Zones, can be termed tax “loopholes.” There is no question that the term loophole is loaded and has a negative connotation; it suggests a manipulation or even an evasion of tax rules. But is it appropriate to call an overt tax credit a loophole?

The Redding Record Searchlight points out that largest “loophole” being targeted would effect most California families:

Most of those “loopholes” are what California families call “lunch money.”

The single largest “loophole” — worth $1.3 billion a year — would be reducing the credit for dependents that eases families’ income-tax bills. If passed, this proposal would cost taxpayers $200 more for each child or other dependent when they file their state returns.

And regarding the Enterprise Zone:

Another would phase out enterprise zones, where businesses win tax breaks for setting up in economically depressed areas, and repeal recent renewals of expiring zones. They include the Shasta Metro Enterprise Zone, which was reauthorized last year. Ending that tax break would hit thousands of businesses in the Redding and Anderson areas.

The Los Angeles Daily News makes a very strong case along the same lines:

After years of reckless spending and special-interest pandering, officials in Sacramento now face their comeuppance in the form of a massive budget deficit. So they turn their focus to closing “loopholes.”

But there’s just one problem: The folks in Sacramento have a very different notion of what constitutes a “loophole” than do the rest of us.

The biggest “loophole” in California, according to state Legislative Analyst Elizabeth Hill and a panel of experts who met last week to discuss ways to bring in more money is … the home-mortgage deduction.

Yes, that home-mortgage deduction. The one that makes the cost of living bearable for every condo-, bungalow-, or tract-dwelling family in the San Fernando Valley.

For many of us, the home-mortgage deduction is what makes Southern California homeownership affordable at all. But to the savvy minds in Sacramento, it’s a giveaway – a crack in the system that you’ve been allowed to slip through for too long.

And closing that “loophole” would bring in almost $5 billion to Sacramento’s coffers, which would go a long way toward fixing that self-inflicted budget deficit, which is (for the moment) pegged at $8 billion.

Sure, it might also drive the middle class clear out of the state, but that doesn’t seem to bother the folks up north. They’re more interested in balancing their books, not yours.

Some of the other “loopholes” are less controversial, but still problematic.

One suggestion is to eliminate business-tax credits for research and development – a $919 million savings, but at the potential cost of driving away the very jobs California most desperately needs. Another is to scrap enterprise zones, which cost taxpayers $454 million, but which many argue have done wonders to revitalize poorer communities.

It’s fair to ask whether these policies achieve their intended goals, and whether they’re worth the cost. But it’s absurd for the very politicians who have long promoted them to suddenly suggest they are an unwarranted giveaway.

What’s more, eliminating a long-standing tax deduction or credit is nothing less than a tax hike for the person or business that ends up paying a higher tax bill.

Officials in Sacramento should at least be honest. They’re not seeking to close loopholes for a few, but to raise taxes on us all.

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