California Accountability Measures - SB 508 and SB 364

Several states, including California, have proposed actions and taken actions on adding accountability to the tax system. The measures usually apply to tax credits. A common approach is to place a sunset date on enacted credits to ensure that they don't remain in the law permanently and that they get back on lawmakers' radar screens, such as when the sunset date approaches. Another approach would be to include some assessment measures so that the tax agency or other government agency can measure periodically if the tax incentive is accomplishing the goals for why it was enacted. A good example of California doing this in the past was with the Manufacturers' Investment Credit (MIC). If California did not have an increase of over 100,000 jobs in certain sectors, the MIC would go away. It lasted for sometime, but then the jobs number went down and the MIC disappeared.

I blogged on a proposal in California - SB 508 in May (here). It is focused on accountability for future enacted income tax credits. That is good, but I point out that tax incentives don't only come in the form of credits and they exist in all types of taxes (not just the income tax). Thus, the bill is too narrow.

SB 508 passed in the legislature (enrolled bill / for analyses, search for SB 508 here). It is on the governor's desk awaiting signature or veto.

SB 364 also passed the legislature (enrolled bill / for analyses, search for SB 364 here). This is an odd bill. It would impose a penalty for future credits enacted, where the claimant had a decrease in employment. Governor Brown vetoed this one on 10/7/11 saying that the approach is too broad and penalties should be tailored to a credit's unique provisions. I agree. I think SB 364 would also have made the law more complicated in measuring employment and identifying which future credits would be subject to this penalty.

There is an informative California Watch article on these bills - Kendall Taggart, "Bills seek to better regulate tax breaks," 10/6/11. (Disclaimer: I'm not just saying this because I'm quoted in the article.)

Let's see what Governor Brown does with SB 508. I think if he signs it, that would be good. I would then hope that this is a trial for how to add accountability measures to income tax credits that might then be expanded to other special rules added to income, sales, property, excise or other taxes. This approach, particularly one of requiring lawmakers to state the goal for a special rule and how its effectiveness in reaching that goal will be measured, might also end up in fewer incentive provisions which would also prevent tax laws from becoming more complicated, inequitable and inefficient.

What do you think?