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State not doing enough to collect billions in unpaid taxes

California’s fiscal crisis doesn’t just exist in Sacramento.  Its effects reach nearly every Californian in every corner of the state in the form of dilapidated schools, shuttered parks, and diminished public safety services.  Yet so far the only budget solutions debated under the Capitol dome ask Californians to pay more or get by with even less in the services they count on.  Curiously, no one seems to be talking about the one solution that would bring $6.5 billion into the state’s coffers without taking a penny from our schools, without issuing a single pink slip, and without hiking taxes by a single nickel.

By collecting the $6.5 billion in unpaid taxes, a sum the Franchise Tax Board estimates California leaves on the table each year, California could raise enough money to wipe out a third of the current shortfall. This year, the money lost to tax cheats would pay the state’s entire share of expenses for the University of California and the California State University systems.  Collecting this money doesn’t require raising tax rates, wiping out entire social programs or cutting back on teachers, students and schools.

All lawmakers need to do to start collecting these funds is make better use of technology and streamline wasteful government redundancy.

California is one of the only states in the nation that operates three entirely separate tax agencies.  We have the Board of Equalization, which oversees state sales, use, property, alcohol, and tobacco taxes; the California Franchise Tax Board, which handles corporate and personal income taxes; and the Employment Development Department, which manages employee withholdings and unemployment.

Currently, each agency maintains a byzantine set of codes and functions wholly independent of the others.  And therein lies the fundamental problem.

California’s three tax agencies serve the same taxpayers, but utilize three sets of staff, rules and codes.  This redundancy is what ultimately enables tax scofflaws to hide their tax responsibility by submitting separate – and often far understated – reports of their activities.  

The way this current system is set up, it’s the individual taxpayers and small business owners who do the right thing by reporting their income who end up bearing the tax burden for our state. Honest people carry the load for those who abuse our system and who cheat our kids of education funding, our communities of public safety funding, and our elderly of health care services.

For years there has been talk about merging the state’s three tax agencies, which on the surface would seem like a common sense idea. But the problem with this plan is that it comes with too many unknowns and a price tag we can ill afford right now.  Moreover, there are simple and more immediate steps we can take now that might eliminate the need for such a complex, long-term endeavor. In fact, bridging our fiscal gap could be as easy as streamlining overlapping functions and breaking down barriers that hamper communications and efficiency.

To start, lawmakers need to take steps to empower our three agencies to use a single identification system for each taxpayer to help track cheats across agencies. Doing so would open the door for technology to allow collections agents to collaborate, share data, and match records.

For what would be a small upfront investment in data matching technology, we could ultimately see a pay back tenfold in dividends to our state.

As our system stands now, one giant corporation or a team of accountants employed by one Hollywood actor can tie up collections agents from each agency for months or even years. With our children’s education and the state of our public infrastructure hanging in the balance, thousands of cases are pending that could bring in billions of sorely needed dollars.

It’s time our lawmakers take action because when it comes to collecting what’s already owed to the state, three systems is not better than one.


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