Tax Opportunity for California
The 1986 federal tax revision, featured by a great expansion of the tax base (the income subject to tax), along with expanded minimum tax provisions, gives Californians a unique opportunity to make an important and long-overdue revision of our state income tax system.
As an experienced tax law specialist, I’d like to tell you how this could benefit Californians. This is a concept only; the economic experts can put in the numbers.
There are hundreds of differences between the federal and California definitions of taxable income. These have been rationalized by the Legislature and the tax administrators as preserving our state sovereignty--as a means of effecting state policy. Taxpayers know that is not so--the differences are merely devices to raise revenue. What is the state policy in taxing capital gains more stiffly than the Feds do? Does anyone really invest in small business corporations because California taxes those investments more favorably than does the Internal Revenue Service? Is there any justification in cutting the Individual Retirement Account deduction except to get more state revenue?
Because of the far-reaching effect of the federal changes, California law will have to follow suit. We have two basic choices: embrace the federal law totally or adopt the 1986 changes in pieces. If we accept the federal changes in total we will have a state system that will be easier to understand than one that selects only those changes that enhance revenue. This will save our fellow citizens much time and money in preparing their returns. It can result in better use of Franchise Tax Board personnel, by letting them spend this time on affirmative audit, rather than on interpreting differences in state law. This will also save money in administrative costs for the state.
In either case, we will be able to cut the state tax rates.
As proof of the unnecessary complexity of the present California tax law (even before the 1986 changes) I offer a challenge: Give your 1986 tax data to your tax preparer and ask that he or she prepare only your federal return. I’ll bet you can’t accurately and easily prepare your own California return.
As a sidelight, you may remember that California conformed its death tax to the federal law in 1982. That change has worked as well as the income tax change will work.
DAN OLINCY
Los Angeles
