Coalition Seeks to Eliminate Tax Breaks for Rich, Corporations

SACRAMENTO —  The California Tax Reform Assn.--the public interest coalition that pushed successfully for “tax the rich” legislation last year--said Wednesday its next target will be closing state tax loopholes that benefit wealthy Californians and corporations and cost the California treasury billions.

Leaders of the group, saying they were concerned by Gov. Pete Wilson’s warnings that the state faces a new round of budget cuts in education, health and welfare programs because of a projected $3-billion revenue shortfall, kicked off a campaign aimed at reducing or eliminating income tax writeoffs allowed for country club dues, tickets to sporting events and other entertainment expenses.

The group said it will also challenge what it called “tax subsidies” to California corporations for overseas operations, fight for a change in the law allowing property investors to transfer property without paying taxes on gains and try to end the practice of allowing the wealthy to write off interest payments on luxuries such as yachts.

“There is no way we should allow people to write off going to sporting events while kids are going hungry and school programs are being cut,” said Lenny Goldberg, a public interest lobbyist who is heading the effort. Members of a broadly based liberal coalition formed to pressure Wilson and the Legislature for the changes include groups such as the Western Center on Law and Poverty, representing some of California’s neediest citizens, and the California State Employees Assn., which represents some of its best organized.

The taxpayers’ group won a victory this year when it pressured Wilson and the Legislature to enact a bill boosting the top rate of the state income tax paid by California’s wealthiest taxpayers.

As part of a package of more than $7 billion in tax increases enacted in June and July, the income tax measure created two top brackets for state income taxpayers: 10% for individuals earning more than $100,000 in taxable income ($200,000 for couples), and 11% on those earning more than $200,000 ($400,000 for couples). State taxpayers below these income levels pay 9%.

The fight to eliminate loopholes may be far tougher than the battle to raise tax rates on the wealthy. Many of the loopholes have existed for years and have withstood repeated efforts to eliminate them.

But Steve Hopcraft, a spokesman for the drive to cut out tax loopholes, said he believes the group will be able to capitalize on what is perceived as broad public support to end tax favors for the rich. “Nobody ever thought we’d make it on the ‘tax the rich’ campaign, either, but we did,” Hopcraft said.

Franz Wisner, a spokesman for Wilson, said: “Obviously, we’ll look at any egregious tax loopholes. But all too often people like Lenny Goldberg use the term tax loophole to mean tax increase, and the governor has said repeatedly the state cannot afford additional tax increases. Any additional tax increases will just drive more businesses and jobs out of the state.”

One of the proposals made by the tax reform group Wednesday would limit mortgage interest deductions to $70,000 a year. A rough estimate is that this would deny the deduction for property owners carrying mortgages of $750,000 and up. This change would raise $60 million, the group said.

Under current tax rules, boats and yachts qualify for the homeowner’s tax breaks if they have standing head room and a bathroom. Eliminating this deduction would save $10 million annually.

Spokesmen for the group said they did not consider complete elimination of tax benefits for property owners, which cost the state an estimated $2.5 billion a year, because those deductions have so much popular support.

Other proposals made by the group include a call to repeal special tax rules benefiting multinational corporations. Corporate lobbyists, led by the Japanese, successfully pushed through a bill in 1985 allowing their employers to count only their U.S. earnings in figuring their state corporate taxes. By returning to the old system, in which California taxes were based on a firm’s worldwide business activities, the tax reform association said the state would gain revenues of $340 million a year.

The tax reform association also called for an end to tax-free exchanges of property. Unlike shares of stock, purchases of gold or other items, real estate gains are free from taxation if they are swapped for similarly valued property. An end to “like-kind exchanges” would raise $200 million, Goldberg said.

The group said that California is the only state without an oil severance tax--a tax on oil as it is pumped out of the ground. The group said a 6% oil severance tax would generate $250 million.

The group also called for a reduction in tax writeoffs claimed as business expenses for meals, ball games, concerts and the rental of luxury suites and boxes at athletic events.