One Man’s Loophole…

Loren Kaye

President of the California Foundation for Commerce and Education


With Assembly Speaker Bass’ announcement of her secret plan to raise revenues to address the state budget deficit, the war of words will be as important as battle over numbers.

According to the Speaker, part of Assembly Democrats’ budget solution would be up to $6.4 billion in new revenues, much of it from closing "tax loopholes."  This is where language matters.

What is a tax loophole?  Classically, it means an unintentional characteristic of a law that allows a taxpayer to circumvent the law’s intent without actually breaking that law.  A good example might be the notorious "yacht tax loophole," which allows boat buyers to avoid sales taxes by delaying possession of expensive, out-of-state purchases. But in current political usage, a tax loophole has become any tax law that treats any taxpayer differently from some accepted or announced norm. This is an insidious distortion of political communication, which twists legitimate tax policies – decided clear-eyed by the state Legislature – into flim-flamming tax avoidance.

For example, while she does not label them loopholes, the Legislative Analyst calls out a dozen tax deductions, credits and incentives as candidates for revision, in order to increase state revenues.  Many elected officials, special interests and pundits have embraced these wholesale as "loopholes," thereby short circuiting discussion of the policy basis for these tax treatments.  It’s even worse when applied to new taxes on activities (e.g., sales taxes on services) that had never been contemplated for taxation in the first place.

New revenues and even new taxes may ultimately be an element of this year’s budget solution.  But an honest legislative debate would be about the effect of these increases on the California state budget, economy and taxpayers – and not camouflaged behind innuendos about tax cheating or evasion.

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