Despite years of cuts in programs, Republicans continue to attack government programs as full of “waste, fraud and abuse” which must be purged before any taxes are raised.
Actually, there is waste, fraud and abuse in California totaling billions of dollars yearly — in the tax system. For the most part our schools, police departments, colleges, and health care programs do their job reasonably well, despite occasional lapses noted in the press. It’s the tax system of California which fails us.
Try this one: When a house is sold and bought, the house is reassessed and taxed at the new market value. But when Martini Brothers sold their entire winery operation in Napa to Gallo Brothers, no reassessment took place. When a large investor bought the Mammoth Mountain resort, no reassessment took place. When partners in shopping centers sell to other partners, the shopping center is not reassessed. For commercial properties held in complex ways, the system is more loophole than tax, at a cost of billions of dollars per year in lost property tax revenue.
Or another example: Wal-Mart locates its distribution centers in “enterprise zones”, and receives tax credits for hiring workers that they would have hired in any case, while relying on the state to provide health care for those workers. In enterprise zones, companies hire temporary workers, lay them off, and get tax credits anyway. The enterprise zone law is so vague that a cottage industry of consultants finds unused credits for employers in these zones so they can get tax refunds, just for doing what they would have done otherwise. And where are these “disadvantaged” areas? Downtown San Francisco, San Jose, and Pasadena, among others. This is a classic example of “money for nothing”–waste, fraud and abuse.
Or try oil: California is the only oil-producing state in the country without a production tax on oil. In fact, California appears to be the only place in the WORLD which collects neither royalties nor taxes from oil production. A definitive economic analysis by RAND Corporation has shown that such a tax affects neither production nor prices. But we’re still leaving billions on the table by failing to tax our own oil.
Then there are multinational corporations. California once had an exemplary system for making sure multinationals pay their fair share of tax, but their lobbying eliminated that in the 1980’s. Now, these multinationals can park their income in the Cayman Islands and other offshore tax havens. They get to use the income, but it’s never taxed. Multi-nationals get a choice about what income they want included or excluded, unlike any ordinary taxpayer—at a cost of half a billion per year.
These abuses of the state’s tax system hurt businesses and jobs. Amazon has hundreds of “associates” in the state of California who get paid to refer sales to Amazon, but claims to have no presence in the state and therefore does not collect sales tax on sales to California. Amazon collects under identical circumstances in the state of New York, but avoids collecting in California, to the detriment of struggling retailers who all have to collect sales taxes. Main street and shopping malls, who hire California workers, are at a disadvantage, and the state loses millions as well.
The legislature even opened up new areas of tax abuse as a result of last year’s budget deal. Companies have long been able to carry losses forward against future income. But companies who paid taxes in a profitable year and later take losses will now be allowed to carry back those losses and get a refund for taxes previously paid! So when the state is in a recession and companies are losing money, these companies will now get refund checks for previous years, even as the state is forced to cut programs.
How much waste, fraud, and abuse is in the tax system? Actually, there are many billions yearly in deductions, exemptions, exclusions, loopholes and special rules of all kinds—enough to close a major share of the budget gap. Not all of the gap, by any means—more broad-based solutions, including taxes and cuts will be needed. But we’re leaving money on the table, giving out money for nothing, and allowing tax avoidance without even trying to improve the system. So once we squeeze the abuse out of the tax system, then we can have a realistic conversation about sharing the sacrifices and sharing the pain.