Real Estate Round-Up: The tax man comes

California lawmakers introduced more than $20.4 billion in new taxes and fees in the 2019-2020 legislative session, and $4.4 billion of those taxes and fees were signed into law by Gov. Gavin Newsom. During this time of economic prosperity, the state approved a budget of $214.8 billion, which is a $13.4 billion increase over last year.

California has a projected reserve of $20.59 billion and an operating surplus of $22 billion. In former Gov. Jerry Brown’s last year in office, he signed into legislation a mere $200 million in new taxes and fees. The $214.8 billion budget includes record high spending on public education, which is the single biggest item in the general fund, including nearly $5,000 more per K-12 pupil than eight years ago.

Senate Bill 468, written by Sen. Hannah-Beth Jackson, D-Santa Barbara, seeks to repeal tax credits, deductions, exemptions and exclusions under the guise of “transparency and accountability.” The bill will create a new bureaucracy formed to evaluate if the credits, deductions, exemptions and exclusions are being used efficiently, in exchange for the intended public policy objective.

The California Teachers Association supports SB 468 because they said that every tax credit to the General Fund takes approximately 40 cents out of California’s classrooms. The California Tax Expenditure Review Board is tasked with evaluating the tax credits, etc. and report back at the end of 2020. Judging from the record high spending for education proposed in the budget, it appears that some early decisions have been made regarding the repeal of these deductions.

The big red flag to me is that most tax credits, deductions, exemptions and exclusions exist to promote job creation, so if these credits go away, jobs too will be impacted, incomes will drop and ultimately state revenue. So, what has been gained?

On deck for the 2020-2021 legislative session is two-year bill Senate Bill 522, written by Bob Hertzberg, D-Los Angeles, which is a tax on services. It would set the stage for updating California’s sales and use tax by expanding the levy to business services. Although the concept of a business services tax has been repeatedly blocked, Hertzberg has been among policymakers calling on the state to modernize its tax structure, and the Los Angeles legislator’s measure could form the basis of an overall tax overhaul in 2020.

California has evolved from an agricultural and manufacturing-based economy to one dominated by the service industry. Sales and use taxes made up 61% of the state general fund in 1950. Today, they account for only 30%. Meanwhile, personal income taxes accounted for 12% of the general fund in 1950 compared to 70% today. The bill suggested that adding a service tax would provide stability in a volatile economic market. This service tax, which is proposed to be 5% on all services, would apply to hair stylists, barbers, dry cleaners, accountants, etc. Everyone would be impacted by this fee, especially the middle class.

A few weeks ago, I reported on the exodus from California. The exodus was directly or indirectly related to the cost of housing in California. Every time there is a new tax or the repeal of an exemption, the cost to live in California is increased. Despite low interest rates, resulting in lower mortgage payments, residents must factor in every other cost to be able to live here. Housing is only one piece of that pie.

Unless the state has an overall approach to the cost of living in California which includes evaluating a budget that has an insatiable appetite for more, people and businesses will continue to leave. Many leave, not because they want to, but because they cannot afford to live here anymore.

I will continue to report on legislation that impacts the cost of living and the cost of housing, with the cautionary reminder to vote. Sen. Brian Jones did not support these taxes, and neither did Assemblymember Marie Waldron. They were respectively No. 5 lowest out of 40 in the Senate, and No. 13 lowest out of 79 in the Assembly. There’s work to be done outside of our district. Spread the news.

Kim Murphy can be reached at [email protected] or (760) 415-9292 or at 130 N. Main Ave., in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.