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Sacramento still refuses to review billions in California tax breaks

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Taxes are a necessary evil — less necessary to some citizens than others. But it was former Gov. Gray Davis, removed from office in 2003 after rescinding a tax break on vehicles, who summed up best the resistance to reinstating taxes once cut by elected officials.

“Once you give something back to people, you can never ask them to return it,” Davis told me in a 2006 interview. “You gave it to them, it’s theirs, leave it alone.”

Perhaps that helps explain why the simplest of efforts — to review the efficacy and merit of some $73 billion in existing California tax breaks — will again fail to materialize in Sacramento once lawmakers adjourn for the year at the end of the month. And that reluctance comes even as majority Democrats again consider sweeping new taxes, apparently a more popular idea than reviewing the laws on the books that have lowered existing taxes on a variety of industries and items.

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‘Every dollar counts’

“I have wondered why we are not analyzing and reviewing these tax breaks that we have given,” said state Sen. Hannah-Beth Jackson (D-Santa Barbara). “Some go back to 1940, and they’ve never been accountable. Every dollar counts.”

The most recent estimate is that dozens of California tax breaks (known as “tax expenditures” in budget lingo) reduced state government general fund revenue by almost $73 billion in the fiscal year that ended in June — up in value more than 70% from just a decade earlier. Most of the amount comes from the value of personal income tax breaks, though tax cuts for corporations and in sales and use taxes also reduce revenue collections.

No one is clamoring to cancel all — or even most — of the incentives, many of which are widely used and incredibly popular. The five largest tax breaks, based on a 2018-19 analysis: employer retirement contributions, employer health coverage contributions, tax-free sales on bottled water and some food, Social Security income and interest paid on mortgages.

A fair amount of scrutiny has been applied to tax breaks in recent years. A 2014 law requires new exemptions to include performance goals and measurement standards for lawmakers to keep tabs on whether they should remain on the books. A number of tax breaks now include expiration dates, thus requiring lawmakers to vote again if they want to keep them on the books.

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But criticism persists that the state’s wealthiest residents and large businesses reap larger rewards from tax breaks than low-income individuals and families — by one estimate, at a ratio of almost 18 to 1.

And here’s the dirty little secret about California tax breaks: They can be enacted by a simple majority vote of both the state Senate and Assembly. But the removal of a tax break is treated as a tax increase and requires a two-thirds vote of each house, to say nothing of a lawmaker being accused of taking a vote to raise taxes.

Jackson, who will leave the Legislature at the end of the year due to term limits, has tried for two consecutive years to enact a law requiring a detailed review of California’s tax expenditures. Gov. Gavin Newsom vetoed her bill last year, arguing that his Department of Finance already keeps tabs on tax breaks. (The veto was “incorrect,” Jackson said, because “there’s no analysis” of the tax breaks.)

This year, her Senate Bill 956 died a quiet state Capitol death when the Assembly refused to bring it up in committee. The proposal was relatively meager, limiting the work of a proposed tax expenditure review panel to “major” tax breaks and a recommendation to the Legislature on what works and what doesn’t. Nonetheless, it was opposed by most of the state’s largest business groups.

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“The special interests whose deductions and actions were being challenged or looked at obviously were not very happy about it,” Jackson said when asked why she thinks SB 956 fizzled.

‘Wealth tax’ proposal (sort of) emerges in Legislature

Even as the effort to examine current tax breaks failed, some Democrats in the Legislature continue to insist that a tax increase is necessary to boost schools and core health and human services programs in the wake of the COVID-19 pandemic. But in reality, the issue looks to be more symbolic than substantive, with just two weeks left in the legislative session in Sacramento.

A summertime proposal to impose a new tax on adjusted incomes above $1 million was quickly abandoned. Last week, some of the same lawmakers embraced another proposal, this one to impose a sweeping “wealth tax” on those with assets worth $30 million or more. Its author, Oakland Assemblyman Rob Bonta, estimated that the proposal could boost annual general fund tax revenue by $7.5 billion.

Just one catch, at least procedurally: Bonta said last week that he knows the proposal won’t even come up for a vote in this session. So consider it a placeholder, perhaps, for the new Legislature come next year.

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Lawmakers want details on COVID-19 spending

The extent of Newsom’s unilateral power was the subject of a tense Saturday meeting of the Senate Budget Committee, where senators on both sides of the aisle wondered why the governor’s team isn’t more frequently keeping them in the loop on COVID-19 costs.

“Why did you not feel it was important to provide the Legislature with more information, and more often?” state Sen. Maria Elena Durazo (D-Los Angeles) asked a member of the governor’s finance department.

On Friday, the Newsom administration released its first full update on coronavirus response costs since mid-May. The report estimates that total pandemic spending — from March through next summer — is expected to be about $1.2 billion lower than the current state budget assumes. That’s largely attributed to a somewhat scaled-down protective mask contract with Chinese auto manufacturer BYD and an expected surge in hospital and medical care spending that didn’t materialize.

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But other state costs have skyrocketed, none more clear in the new report than combating the spread of the virus in state prisons. Administration officials now estimate that almost $459 million will be spent to address COVID-19 cases and prevention in the corrections system — most of which was unexpected only a few weeks ago, and most of which covers tests of corrections workers.

An administration spokesman said Saturday that staff testing costs are higher than for prisoners, in part, because their travel back and forth in nearby communities — meaning a higher risk for transmission — requires them to be tested more often.

Lawmakers insisted, in considering all COVID-19 costs, that more disclosure by Newsom’s team will help them better understand whether taxpayers are getting the most bang for their buck.

“It’s going to be important for us to be able to better communicate to the public that we have our priorities straight,” said state Sen. Richard Pan (D-Sacramento).

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Pelosi calls for swift action on Postal Service operations

This might be the most attention paid to the workings of the United States Postal Service in decades.

After the suggestion last week by President Trump that he might block emergency funding for the Postal Service and thereby imperil delivery of ballots in states across the country, House Speaker Nancy Pelosi on Sunday called lawmakers back to Washington.

The task: Return to session this week to vote on a bill that would ban postal authorities from making “changes to operations or level of service” that were in effect Jan. 1, 2020.

Democrats also plan to summon Postmaster General Louis DeJoy before an emergency House hearing next week.

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Pelosi, in a letter to House members on Sunday, called DeJoy a “complicit crony” of the president, saying he has pushed “sweeping new operational changes that degrade postal service, delay the mail, and — according to the Postal Service itself — threaten to deny the ability of eligible Americans to cast their votes through the mail in the upcoming elections in a timely fashion.”

National lightning round

— The Senate Intelligence Committee, which is close to releasing its final report on an investigation into Russian election meddling, believed former Trump advisor Steve Bannon may have lied to Congress, according to a letter obtained by The Times.

Joe Biden has made much of his ability to reach across the partisan divide, but the gap has widened greatly since his years as a senator from Delaware.

Sen. Kamala Harris went to high school in Montreal, where she learned to negotiate the straits of a diverse culture.

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— Instead of welcoming more than 50,000 people to the Democratic National Convention in Milwaukee on Monday, the party faithful will be watching the convention on their TVs, computers and phones, just like everyone else.

— There may be no big party, but the presidential campaign is no mere afterthought in Wisconsin. It could be the one state, if the election is close, that decides the November contest.

Sen. Bernie Sanders’ delegates go into the DNC with less animosity and “more leverage” as Joe Biden and the Democratic Party aim for unity.

Secretary of State Michael R. Pompeo sealed a defense cooperation deal with Polish officials Saturday that will pave the way to redeploy American troops from Germany to Poland.

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Today’s essential California politics

— A federal judge in San Francisco has ordered immediate testing of all detainees and staff at a Bakersfield immigration detention center where COVID-19 was spreading for weeks while officials refused to test for the virus.

— The sudden departure of California’s top public health officer is intensifying instability in the state’s vital health departments as they struggle with crushing workloads and navigating the worst health crisis in a century.

— Newsom has vowed to protect Californians against hazards and pollutants from oil and gas production. Now the governor is facing pressure to make good on his promise after efforts in the Legislature to mandate buffer zones around oil and gas wells and refineries failed.

— California will resume eviction and foreclosure proceedings Sept. 1 unless the Legislature takes action.

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At least 15,800 essential workers would not have contracted COVID-19 if California had stockpiled enough masks and other protective equipment, while the state would have saved $93 million weekly on unemployment claims, according to a UC Berkeley Labor Center study.

— In his Monday column, George Skelton sizes up a tough reality for Newsom: The governor’s potential route to the White House has been abruptly blocked by Harris’ ascent to the Democratic vice presidential slot.

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