Taken
in context of the Expenditures and Revenue Stream which make
up California's General Fund, the economic impact of our tax
plan is negligible.
Consider,
for example: The California Franchise Tax Board and its 6000
employees spend $445 million each year to interpret, prepare
and process 13 million California income tax returns. They
spend an average of $34 on each long form tax return but only
about $2 on each 540EZ short form. If we were to
replace 10 million complex tax forms with our 540-Simple tax
form the FTB could reduce its workload by 75% and save $320
million for the State Fund.
In
addition to this savings in bureaucratic overhead, the real
question is why a tiny percentage of the various exemptions
and deductions could not be cut - a small price to pay to
free 3 out of 4 Californians from the Franchise Tax Board's
annual torture test, Form 540.
SUPPORTING
DATA
In
order to understand the effect of our modest tax reform on
California's State Finances it is important to first discuss
in broad terms the income stream which makes up the state's
general fund, its overall size, and the Tax Expenditures
(Deductions, Exemptions and Credits) which reduce State
Revenue.
In
2001 the General Fund revenue stream consisted of the
following:
| Personal
income tax |
$
43.1 Billion |
(57.4%) |
| Bank
and Corporation Tax |
$
5.5 Billion |
(7.3%) |
| Retail
Sales Tax |
$
21.1 Billion |
(28.1%) |
| All
other sources |
$
5.4 Billion |
(7.2%) |
| Total
Revenue Received |
$
75.1 Billion |
(100.0%) |
The
California Legislative Analyst's Office reported that Tax
Expenditures in both the personal and corporate income tax
reduced State revenue over $20 billion in 2001.
Some
of the larger Tax Expenditures are listed below:
| Personal
Income Tax: |
|
|
Mortgage interest deduction |
$3.2
Billion |
|
Exclusion of pension contributions |
$3.2
Billion |
|
Exclusion of health plan contributions |
$2.7 Billion |
|
Exclusion of Social Security benefits |
$1.2
Billion |
|
Charitable contributions deduction |
$1.2
Billion |
|
All other tax expenditures |
$6.6
Billion |
|
Total personal income tax revenue lost |
$18.1
Billion |
| |
|
| Sales
and Use Tax revenue lost |
$1.1
Billion |
| |
|
| Bank
and Corporation Tax revenue lost |
$4.0
Billion |
Eliminating
just 5 percent of these Tax Expenditures would more than
pay for our tax plan.
References:
1
Informational Hearings on Review of Tax Expenditures: Assembly
Committee on Revenue and Taxation January 8 2002 (visit Committee
website in a new window)
2
Annual Report 2001: California Franchise Tax
Board (see FTB
Reports in a new window)
3
Personal communications with the California Franchise
Tax Board: Notes on file with Roland Boucher, Chairman,
United Californians for Tax Reform.
4
Personal
communications with the Statistics of Income Division of the
Internal Revenue Service: Notes on file with Roland
Boucher, Chairman, United Californians for Tax
Reform. The IRS and its 100,000 employees spend
over $9 Billion each year to interpret, prepare and process
130 million Federal Income Tax returns. They spend an average
of $69 on each tax return. Were
our simple tax plan adopted by the Federal Government, and were
they able to process a simple tax form as efficiently as
California, the IRS might be able to reduce its budget by $7
Billion and its work force by 70,000 personnel.
