The Assembly on Monday passed legislation to eliminate the renters' tax credit for couples with incomes exceeding $50,000 and singles who make more than $40,000, using the savings to increase the same tax credit for low-income elderly citizens.
The bill, authored by Assemblyman Mike Roos (D-Los Angeles) and pushed by Democrats against nearly solid Republican opposition, would mean an estimated $114 a year extra for about 190,000 people age 65 or older.
Under current law, the renters' tax credit is $137 for married couples, heads of households and surviving spouses, and $60 for other individuals, regardless of income. At least 320,000 renters who claim the tax credit now would lose it if Roos' bill becomes law, according to figures supplied by the state Franchise Tax Board.
The Assembly passed the bill on a 43-28 vote and sent it to the Senate. Later, the Democratic-controlled Senate Rules Committee waived normal legislative procedures to allow Roos to have the bill considered in that house during the next month rather than wait until next year.
Although Gov. George Deukmejian has taken no position on the measure, Roos said he believes Republican opposition to the idea will make it difficult to obtain Deukmejian's signature on the bill even if it clears the Senate.
"It will be a miracle if it ever becomes law," Roos said of his measure, which is supported by a wide array of senior citizen groups. "It's not their (Republicans') constituency."
The Deukmejian Administration's Department of Finance opposes the bill, said Lois Wallace, a department spokeswoman. She said department officials believe the program would be difficult to administer and unfair to older low-income homeowners who would not get a similar break on their taxes.
"The bottom line seems to be to try to help low-income senior citizens," Wallace said. "This seems like an awkward way to do it. There is probably a much easier and less complicated way to help them than to go through this kind of a setup."
But Roos said the method he proposes is the best practical approach to aiding elderly renters because it results in no net increase in taxes. A tax increase would require the approval of a two-thirds majority of each house of the Legislature, a vote that is nearly impossible to obtain without bipartisan support. Rather, Roos said his bill redistributes the current tax burden from higher- to lower-income people.
The renters' tax credit was enacted in 1972 and increased in 1978 as a way to give renters a break comparable to the state's property-tax exemption for homeowners. Homeowners pay no property tax on the first $7,000 of their house's value.
Roos said poor older people need the extra tax credit more than the people who would lose it under his bill, a group he termed "upper-class."
"Let's face it, when you have an adjusted gross income bordering on ($50,000), you could be a homeowner if you wanted to and you're choosing not to," Roos said. "When you look at the need at the other end, where people are forced to rent, I think on balance it is an appropriate public policy adjustment to make."
To qualify for the extra tax credit under Roos' bill, citizens would have to be 65 or older with an annual household income of no more than $6,720. At least 60% of that income would have to be spent on rent. Wealthier citizens who are able to use tax breaks to minimize their taxable income would not be eligible for the credit.
The $40,000 threshold for singles and $50,000 for couples filing joint returns would be based on adjusted gross income, which is total income less such items as business expenses, moving costs, alimony and contributions to retirement plans. The Franchise Tax Board estimates that such people claim about $21.7 million in renters' tax credits under current law.
Tax credits, unlike deductions, are subtracted directly from the tax due the government and are thus equivalent to cash. Renters must file a state income tax return to claim the credits, but they are eligible to receive them even if they owe no taxes.