Reform Overdue on State’s Tax Rules

There is a considerable difference between a taxpayer who has dutifully made sufficient (or excessive) estimated tax payments or had income tax withheld with respect to a particular income tax year but has not filed a return and taxpayers who ignore their obligations to file altogether [“Critics Assail Way State Penalizes Tax Non-Filers,” Aug. 27].

The California rule is without merit or equity and should have been modified long ago. The issue of revenue loss from modification of this law is a ludicrous one. California has not for many years provided preferential treatment for capital gains, and as a result has reaped a windfall from the income generated from the sale of stock in a prolonged rising market.

The maximum California tax rate for all income is the same. Because our state has an inordinate number of wealthy individuals, both investing in and active in the formation and evolution of high-tech companies, a significant surplus has been created, to which the state is not entitled, in my opinion.

Our legislators have not been forthright in communicating this to the citizenry of California. The benefit from an archaic tax structure to the state treasury dwarfs the supposed loss of revenue from the modification of this unjustified and onerous provision.

The legislators and [tax information publisher] Lynn Freer, who think otherwise, are either woefully uninformed, naive or myopic in their view of the big picture: California has reaped a historic amount of tax revenue from the technological revolution and the performance of the stock market (not to mention the sizable compensation from the exercise of stock options, treated as ordinary income, which abounds in this state), yet politicians and apparently some contributors to your article have overlooked the fact that the revenue loss from this change was long ago made up in a big way.

What we need is a revised tax system providing preferential treatment for long-term capital gains, as we once had. The federal rules, while not perfect, at least factor in implied indexing for inflation by reducing the rate on capital gains; California does nothing of the kind, and taxes all appreciated assets when sold, without regard to inflation during the holding period, at the same rates as ordinary income.

STANLEY NUGIT

West Los Angeles