Existing law, the Uniform Commercial CodeLeases, governs the various aspects of leases of personal property, including their formation, construction, effect, and performance. Existing law provides than an agreement modifying a lease contract does not need consideration in order to be binding.

This bill would make nonsubstantive changes to those provisions.

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

Personal income tax: standard deduction

Increases the amount of the standard deduction by 25% used to compute taxable income.

Background

Existing federal and state law allows taxpayers who do not elect to itemize their deductions for the taxable year to deduct from adjusted gross income a basic standard deduction amount in calculating their taxable income.

Both state and federal laws provide annual indexing of the standard deduction. The 2015 state standard deduction for single, or married or registered domestic partners filing separately taxpayers is $4,044 and $8,088 for married or registered domestic partners filing jointly, head of household, or a qualifying widow(er).

Proposed Law

Senate Bill 891 increases the amount of the standard deduction by 25% used to compute taxable income. Specifically, this bill:

• Increases the standard deduction for taxpayers that are single, or married or registered domestic partners filing separately from $4,044 in 2015 to $5,055 in 2016.
• Increases the standard deduction for taxpayers that are married or registered domestic partners filing jointly, a head of household, or a qualifying widow(er) from $8,088 in 2015 to $10,110 in 2016.
• Applies to taxable years beginning on or after January 1, 2016.

State Revenue Impact

According to the Franchise Tax Board, SB 891 results in revenue losses of $260 million in fiscal year (FY) 2016-17, $280 million in FY 2017-18, and $290 million in FY 2018-19.

Comments

1. Purpose of the bill. According to the author, “Itemizing, as opposed to claiming a standard deduction, requires a tax filer to list each deductible expense, which requires more work, an understanding of which expenses are deductible, greater record keeping, and a greater chance for error. In addition, because mortgage interest and property tax are typically the largest deductible expenses, many property owners choose to itemize their deductions while renters choose the standard deduction. This bill would help put California renters, who pay some of the highest rents in the nation, on a more equal footing with homeowners. By increasing the standard deduction amounts in California and increasing the percentage of filers who claim the standard deduction, the state would accomplish multiple desirable policy outcomes. It would lower the tax burden on filers who currently use the standard deduction and who would continue to use that deduction, as well as lower error rates on tax filings, and it would lower compliance costs and time for tax filers.”

2. How the standard deduction works. The standard deduction is claimed instead of itemizing certain personal expenditures. It acts as a proxy for the typical personal expenses a tax filer might have. Each year, the standard deduction is indexed for inflation to account for the increase in personal expenses. This bill far exceeds any inflationary increase.

3. Tax expenditures. Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. Treasury officials began arguing that these features of the tax law should be referred to as "expenditures," since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues). This bill would increase an existing tax expenditure, costing the general fund $260 million dollars in foregone revenue in the first year alone. The tradeoff for increasing the tax expenditure, resulting in revenue losses, is higher taxes or reductions to other services or programs.

4. How is tax expenditure different from a direct expenditure? As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are reviewed less frequently than direct expenditures once they are put in place. This can offer taxpayers greater certainty, but it can also result in tax expenditures remaining a part of the tax code without demonstrating any public benefit. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy, without a supermajority vote.

Support and Opposition

(4/21/16)

Support: Unknown.

Opposition: California Tax Reform Association.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

Personal income tax: standard deduction

Increases the amount of the standard deduction by 25% used to compute taxable income.

Background

Existing federal and state law allows taxpayers who do not elect to itemize their deductions for the taxable year to deduct from adjusted gross income a basic standard deduction amount in calculating their taxable income.

Both state and federal laws provide annual indexing of the standard deduction. The 2015 state standard deduction for single, or married or registered domestic partners filing separately taxpayers is $4,044 and $8,088 for married or registered domestic partners filing jointly, head of household, or a qualifying widow(er).

Proposed Law

Senate Bill 891 increases the amount of the standard deduction by 25% used to compute taxable income. Specifically, this bill:

• Increases the standard deduction for taxpayers that are single, or married or registered domestic partners filing separately from $4,044 in 2015 to $5,055 in 2016.
• Increases the standard deduction for taxpayers that are married or registered domestic partners filing jointly, a head of household, or a qualifying widow(er) from $8,088 in 2015 to $10,110 in 2016.
• Applies to taxable years beginning on or after January 1, 2016.

State Revenue Impact

According to the Franchise Tax Board, SB 891 results in revenue losses of $260 million in fiscal year (FY) 2016-17, $280 million in FY 2017-18, and $290 million in FY 2018-19.

Comments

1. Purpose of the bill. According to the author, “Itemizing, as opposed to claiming a standard deduction, requires a tax filer to list each deductible expense, which requires more work, an understanding of which expenses are deductible, greater record keeping, and a greater chance for error. In addition, because mortgage interest and property tax are typically the largest deductible expenses, many property owners choose to itemize their deductions while renters choose the standard deduction. This bill would help put California renters, who pay some of the highest rents in the nation, on a more equal footing with homeowners. By increasing the standard deduction amounts in California and increasing the percentage of filers who claim the standard deduction, the state would accomplish multiple desirable policy outcomes. It would lower the tax burden on filers who currently use the standard deduction and who would continue to use that deduction, as well as lower error rates on tax filings, and it would lower compliance costs and time for tax filers.”

2. How the standard deduction works. The standard deduction is claimed instead of itemizing certain personal expenditures. It acts as a proxy for the typical personal expenses a tax filer might have. Each year, the standard deduction is indexed for inflation to account for the increase in personal expenses. This bill far exceeds any inflationary increase.

3. Tax expenditures. Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. Treasury officials began arguing that these features of the tax law should be referred to as "expenditures," since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues). This bill would increase an existing tax expenditure, costing the general fund $260 million dollars in foregone revenue in the first year alone. The tradeoff for increasing the tax expenditure, resulting in revenue losses, is higher taxes or reductions to other services or programs.

4. How is tax expenditure different from a direct expenditure? As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are reviewed less frequently than direct expenditures once they are put in place. This can offer taxpayers greater certainty, but it can also result in tax expenditures remaining a part of the tax code without demonstrating any public benefit. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy, without a supermajority vote.

Support and Opposition

(4/21/16)

Support: Unknown.

Opposition: California Tax reform Association (unless amended).

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