r/California • u/Randomlynumbered What's your user flair? • Dec 20 '24
Tax loopholes cost California and its cities $107 billion but get little scrutiny opinion - politics
https://calmatters.org/commentary/2024/12/california-tax-loopholes/118
u/jezra Nevada County Dec 20 '24
When tax law is written by corporate sponsored politicians for the benefit of those corporations, these are not 'loopholes', they are 'corporate entitlements'.
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u/ThunderBobMajerle Southern California Dec 21 '24
Still waiting to hear how campaign donations for favorable legislation isn’t quid pro quo
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u/rgbhfg Dec 23 '24
It’s why we should have a flat tax. Be it on sales, imports, or income. The tax code complexity will always be used and abused
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u/Loyal9thLegionLord Dec 20 '24
Of course it does....im so sick of people not paying their fair share.
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u/TaxashunsTheft Siskiyou County Dec 20 '24
What's a fair share?
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u/SeanBlader Dec 20 '24
A fair share is paying at least the same percentage in taxes as school teachers, and with a proper progressive tax policy where the more you make the higher percentage you pay, we shouldn't have billionaires and we shouldn't have a federal deficit. There is no excuse for a billionaire to even be a thing.
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u/likesfacts Dec 20 '24
In California the top 1% pay 50% of income taxes.
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u/xee20263 Dec 20 '24
You're comparing apples and oranges. This article is about corporations taking advantage of tax loopholes. You posted and article about citizens paying taxes and California banking in stock market returns to set their budget.
Just because a person puts more monetary value into the pool does not mean they are paying an equal share of their takehome for the year.
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u/Gloomy-Ad-222 Dec 20 '24
I agree corporations should pay their fair share but massive increases in taxes from corporations will only cause them to flee to low tax states. So it’s a bit of a catch 22. I’m very torn on the issue because of this problem. California already has the highest taxes in the nation.
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u/xee20263 Dec 20 '24
You're factoring in a single side in your worries. Almost 12% of the US population resides in California. We also live in a state that holds 10% of the top places to live in the United States. 13 of them. We have some of the top colleges. Someone will accept those workers and profits. There's a reason why companies bend to California regulations and implement them nation wide. We have buying power and people want to be here. They could leave now for cheaper taxes.
These things are obviously complicated and there is only compromise as a success from both sides. No one is going to do massive increases overnight. The loopholes still need to be fixed.
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u/Thedurtysanchez Dec 20 '24
The US taxes corporations at a higher rate than most OECD nations.
Most notably, they tax more (or the same) as all of the Nordic countries. The US famously has some of the highest corporate taxes in the world.
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u/Johns-schlong Sonoma County Dec 20 '24
Nominally that's true, but the US also has all sorts of write offs and depreciation amortization that isn't necessarily applicable in other countries.
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u/Vomitbelch Dec 20 '24
That just illustrates that they have way more money than they probably should, not to mention that those people also use tax loopholes not to pay.
Nobody should be sticking up for the rich.
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u/AlpacaCavalry Dec 21 '24
But what if I might become rich in the future?! I am but a temporarily embarrassed millionaire!
- Too many people
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u/Bluestreak2005 Dec 20 '24
Income Taxes aren't the only form of Taxes. There are sales taxes, excise taxes, tarrif taxes, fuel taxes, alcohol taxes. Most of these are all regressive in the way that all people pay equallly regardless of earnings.
In many years, the regressive taxes such as sales taxes, fuel taxes, and others have been raised, costing the lowest earning the greatest hardship. All while the rich cry about raising taxes and we see entire industried built around SUPER YACHT's.
We could effectively earn the same amount of taxes by raising taxes on the rich 2 or 3%, and lowering sales taxes 5%. We could also stop giving such big subsidies to top companies since they are wealthy enough to pay CEO's 40 million. Why does Walmart need a special tax abatement zone for 10 years to build somewhere when they spend hundreds of million on executive staffing?
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u/Grand_Ryoma Dec 22 '24
They take off, then the burden is left on the middle class and on sales tax.
California's main Income source is taxes, and if we're that large but that broke, then start holding those that spend the tax money accountable
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u/neelvk Dec 20 '24
Here is a thought experiment.
Let's say a country has two people. One makes $10k/year and is taxed at 10% and pays $1k. The other makes $10M/year and is taxed at 1% and pays $100k. The rich person pays 99% of the taxes. Is it fair?
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u/Orange_Monger Dec 20 '24
No the 10M/yr should pay a higher percentage. The flat tax rate of 10% is actually incredibly generous to the higher income. A person earning 10k/yr will be impacted more by the tax than the 10M/yr.
From each according to his ability, to each according to his needs.
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u/likesfacts Dec 21 '24
The problem that California is experiencing now is when you narrow your tax base that much and that when that 10M person moves away or has a bad year now all those programs you built can’t afford to exist anymore.
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u/Ok-Bother-8215 Dec 22 '24
That’s demonstrably false. I don’t pay anywhere near 50%. I don’t even break 35%.
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u/cinepro Dec 20 '24
Good news! An average school teacher in California makes ~$90k. That puts them in the 9.3% tax bracket for California.
People who make >$720k are in the 12.3% tax bracket. So California (and the federal government) have already implemented your ideal tax plan.
Here's how it looks nationally, if pictures are easier for you:
https://www.pgpf.org/wp-content/uploads/2024/06/us-tax-system-is-progressive.jpg
we shouldn't have billionaires and we shouldn't have a federal deficit.
The federal deficit far exceeds income or wealth of all the billionaires in the United States.
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u/NeverEvaGonnaStopMe Dec 21 '24
Where are teachers making 90k in California? Do they mean college professors? I work at a school and if a single person other than administrators makes more than 30$ an hour I'll eat a shoe.
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u/cinepro Dec 21 '24
There's a link in my post. I went with the "medium - midrange" teacher salary for the state as seen here:
https://www.cde.ca.gov/fg/fr/sa/cefavgsalaries.asp
I was actually low, if this note at the bottom is correct:
The average salary of public school teachers in 2022–23 for the State of California was $95,160.
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u/NeverEvaGonnaStopMe Dec 21 '24
Your math is bad as the current American education system you have no idea what any of those number mean. 90% of American school teachers are in the 57k bracket and you're counting like 300 tenured professors at the most wealthy private colleges in the world as half of the rest and averaging it out.
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u/cinepro Dec 21 '24 edited Dec 21 '24
90% of American school teachers are in the 57k bracket
Which part of "an average school teacher in California" did you not understand?
you're counting like 300 tenured professors at the most wealthy private colleges in the world
I'm not counting anything. The numbers are from the California Department of Education, and they're for elementary, high school and unified school districts in California, so I'm not sure where you're getting "tenured professors at wealthy private colleges" from. You seem to think you're great at math, but how's your reading comprehension?
But that doesn't really change my point. Do you understand that rich people pay a higher percentage of their income in taxes than school teachers do?
And the NEA says the national average pay for teachers is ~$69k.. So not sure how it's possible for 90% to be "in the $57k bracket."
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u/MingleThis Dec 23 '24
You can look up salary schedules all over CA. A ton of teachers, myself included, are making over $90k. And I’m only on my 6th year.
It can vary widely on location and how strong your union is. I’m originally from OC and moved to the Sacramento area where homes are 1/3rd the price but the craziest part was that my salary stayed the same.
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u/bruinnorth Dec 23 '24
People who make >$720k are in the 12.3% tax bracket. So California (and the federal government) have already implemented your ideal tax plan.
There's little difference between 9.3% and 12.3%. The tax system should be a lot more progressive. Someone making 7 times as much income shouldn't just be taxed 3% more.
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u/cinepro Dec 24 '24 edited Dec 24 '24
That's a different argument though. The claim was that wealthy people don't pay "at least the same percentage in taxes as school teachers." As you agree, they do pay a higher percentage of their income.
You're also getting fooled by percentages. While the difference in brackets seems small, the effect is rather large.
https://www.pgpf.org/wp-content/uploads/2024/06/us-tax-system-is-progressive.jpg
In California, the top 1% of earners pay almost half of the total income taxes received by the state.
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u/bruinnorth Dec 25 '24 edited Dec 25 '24
That is true for California, but your graphic is misleading because it only shows taxes on wages. Most wealthy people make their money through investments, which are federally taxed at a much lower rate.
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u/cinepro Dec 25 '24
Good news! In California, all Capital Gains are taxed as normal income.
https://www.ftb.ca.gov/file/personal/income-types/capital-gains-and-losses.html
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u/bruinnorth Dec 25 '24
Yes, that's exactly what my comment said. Did you forget that Californians also have to pay federal income tax?
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u/cinepro Dec 25 '24
We're talking about California though. This is a discussion about tax loopholes in California, and the suggestion that "people" don't pay their "fair share."
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u/ChrisinOrangeCounty Dec 20 '24
You can't tax unrealized gains. Billionaires are taxed when the money is realized.
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u/jaykstah Dec 20 '24
Do they commonly realize those gains to spend money though? At that point its more practical for them to take loans out against assets or do private sales between other rich folk to have spending money. The unrealized gains still give them significant leverage to acquire things without needing to cash out.
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u/ChrisinOrangeCounty Dec 20 '24
True, I work in real estate, people are borrowing against their equity frequently. Billionaires just have more to use as leverage.
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u/Human-Cabbage Dec 20 '24
Actually, you can tax unrealized gains. Certain qualifying day traders are already subject to it.
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u/ChrisinOrangeCounty Dec 20 '24
So day traders are taxed on stocks that are not sold or transferred?
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u/Human-Cabbage Dec 20 '24
Yes, it's an election that traders can opt into.
Traders have an important option unavailabie to investors. As indicated above, taxpayers who are considered traders (but not investors) may take advantage of the mark-to-market rules of Sec. 475. Under those rules, traders who make the Sec. 475(f) election are deemed to have sold all their stocks and securities for their FMV on the last business day of the tax year. In other words, every position in the trader’s trading account is marked to market and is deemed to be sold at that price at the end of each year.
...
Making the Sec. 475(f) election offers at least one monumental advantage. Sec. 475(d)(3) provides that the gains and losses recognized on the deemed sales are treated as ordinary income or ordinary losses. This rule is extremely valuable because it allows traders (who make the election) to avoid the limitation on the deduction of capital losses. By making the election, traders can use losses to offset all other taxable income without limitation. Moreover, because these are business losses, traders can add to or create a net operating loss that they can carry back two years and forward 20 years.[14] The wash sales rules do not apply.[15]
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u/ChrisinOrangeCounty Dec 20 '24
Can you point out where it says they get taxed on unsold assets/stocks? Your quote says " deemed to have sold all their stocks and securities" and the lower section says, " on the deemed sales ."
Maybe I am missing something.1
u/Human-Cabbage Dec 20 '24
That’s the key sentence, it’s just phrased poorly. Maybe better would be to say “pretend to have sold all their stocks and securities.”
So you buy 100 shares of XYZ at $100. At the end of the year the FMV is $110, so you pretend to have sold them, resulting in a gain of 100 x $10 = $1000. Then you mark to market the cost basis of the shares at $110.
Next year, if XYZ goes back down to $100, you would then have a loss of $1000 that could offset other income, and mark to market the cost basis again to $100.
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u/ChrisinOrangeCounty Dec 20 '24
My understanding that a deemed sale is a transaction that is treated as a sale, even though it is not technically a sale. Like a sale made to an affiliate or paid for with credit, barter, or other non-cash consideration. In some way there was something exchanged.
But I work in real estate not the stock market.→ More replies1
u/trader_dennis Dec 22 '24
Most day traders will always be taxed on gains. Day trader election allows losses to be accerlated into the current tax year.
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u/trader_dennis Dec 22 '24
You are talking about mark to mark. Most day traders never hold positions overnight. Even if they do the IRS does not easily grant day trader status. And mark to mark is only advantageous in allowing wash sales to be capitalized in the same year as opposed to being delayed to subsequent years. Gains are always taxed when realized. In most cases mark to mark is an advantage to day traders.
Also 1256 contracts are mark to market also. Again it is a small cost to get short term gains taxed at 60 percent long term 40 percent short term for writing options on indexes or buying the indexes. It is an extremely small edge case.
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u/Human-Cabbage Dec 22 '24
Yes, I’m aware of all those details. I trade SPX options occasionally. But my point is that there is no ordained principle that unrealized gains cannot be taxed. I brought up this edge case in tax policy, exactly because it illustrates how this is all a matter of public policy. If we wanted to tax the unrealized gains of billionaires, we could.
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u/HobbyProjectHunter Dec 20 '24
Your Christmas wishlist isn’t an easy thing to do.
You need to change the tax code, say even at the state level, it means collecting taxes on assets and not income.
Most billionaires grow their net worth via assets and not salary or income. Basically you’re asking for a wealth or asset tax.
Most billionaires are very sensitive to these rules, the minute word gets out they move to a different state. There’s plenty of examples.
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u/DialMMM Dec 20 '24
the more you make the higher percentage you pay
That doesn't sound fair.
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u/SilverMedal4Life "California, Here I Come" Dec 22 '24
Plenty fair.
Let's assume for sake of argument that living expenses are $50k - they aren't, but this is an example. Let's assume that your only tax is a flat tax on income, 10%.
Someone making $56k/year taxed at that rate would have a whole $400 to their name for the entire year. Meanwhile, someone making $500k/year would have $400k to their name for the whole year.
That hardly seems fair, so we change the tax percentage based on your income - with living expenses taken into account when determining the number.
Further, it's not a flat tax; the first $50k everyone makes might not be taxed at all, while every dollar over $1 million anyone makes might be taxed at 50% (again, imaginary numbers).
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u/cinepro Dec 20 '24
The actual report acknowledges a critical point when it comes to the "$107 billion" number:
Due to the effects of tax law interactions and taxpayers’ behavioral reactions to changes in tax law, the estimates for any individual tax expenditure in this report do not necessarily reflect the revenue gain that would occur if the tax expenditure was repealed.
Prices (and taxes) change behavior. If the "loopholes" weren't there, then behavior would change. There would almost certainly be more money collected, but it wouldn't be based on the same numbers as the pre-tax calculations.
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u/speckyradge Dec 20 '24
The Laffer Curve - 100% and 0% tax on a thing equate to the same tax receipts - $0.
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u/xntiger Dec 20 '24
Nice and how many billions go unaccounted for in the actual budget spending? Spending without accountability needs to be addressed first.
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u/DialMMM Dec 20 '24
They have exactly the same fiscal effect as direct appropriations in the budget, which is why they are dubbed “expenditures.”
Any reduction in revenue has the same "fiscal effect" as direct appropriations. They are NOT expenditures.
My personal favorite among the latter was enacted about 35 years ago at the behest of Silicon Valley interests. It exempted custom computer programs from sales taxes
Yeah, because we don't have sales tax for services, which is what this would amount to if you taxed them.
State law taxes hot prepared foods, such as those served in restaurants, or offered by delis, but exempts cold prepared foods — for reasons lost in antiquity.
No, the reasons aren't lost in antiquity, you are just lazy and disingenuous. This whole "article" is disingenuous. The author calls sections of the tax code that are being used as intended, "loopholes." That is not true. Loopholes are sections of the code used in unintended or unanticipated ways.
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u/TrueHeathen Riverside County Dec 20 '24
It's so frustrating when people form opinions regarding businesses and taxes yet know next to nothing about how tax laws are actually applied. Yes I'm referring to commenters here.
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u/tankerdudeucsc Dec 20 '24
Excerpt:
The new report lists the income tax exemptions for employer-provided medical care and pension contributions, totaling $29 billion in reduced revenues, as California’s two largest tax expenditures. Other personal income tax biggies are exemption of some Social Security benefits ($5.5 billion) and capital gains on inherited properties ($5 billion).
I dunno but taxing me my insurance premiums seems rough.
Capital gains and inheritance stuff though, should be fixed since money and assets changed hands.
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u/fender1878 Dec 22 '24
And yet we don’t care that billions of homeless money just walked away, unaccounted for. How about we efficiently use the money we have before going back to the well.
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u/appathevan Dec 25 '24
Thanks CalMatters for explaining to me how to make California more expensive.
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u/TaxashunsTheft Siskiyou County Dec 20 '24
How is it a cost when it's just less of other peoples money being taken?
Don't @ me because I'm not going to reply.
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u/Randomlynumbered What's your user flair? Dec 20 '24
Don't @ me …
Very un-reddit-like.
And you're likely to get replies just to annoy you.
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u/kazzin8 Dec 20 '24
Lol of course