According to CalMatters Housing, Governor Newsom recently signed legislation that's meant to close corporate tax loopholes in California, something that unions and their members have been pushing for hard. The unions argue that major corporations end up paying less in state taxes than teachers and social workers, which they say doesn't add up. The new law, known as Senate Bill 1349, asks the Legislative Analyst's Office to take a close look at tax expenditures, which is the fancy term for tax laws that benefit specific groups of taxpayers. The idea is that the LAO would then recommend which of these tax breaks should be changed or done away with altogether.
Here's where it gets interesting though. While everyone's focused on closing corporate tax loopholes, the state's Department of Finance already publishes an annual report showing that tax expenditures cost California about one hundred billion dollars every year. When you look at just the corporate side, it's actually a relatively small piece of that pie at eight point two billion dollars. This includes things like tax credits for the film and TV production industry down south. What's also worth noting is that the same Democratic legislators who supported this loophole-closing bill also voted to expand those film industry credits they say are necessary to keep production work from leaving the state.
According to the reporting, most of these tax breaks that people want to close have actually been put in place over the last sixty years when Democrats controlled the legislature. The article walks through an example of one quirky loophole from decades ago involving custom software that corporations buy. While regular folks buying software off the shelf have to pay sales tax, companies buying customized software don't, which costs the state and local governments about fifty-six million dollars annually. The legislature this year did tax downloaded software for individuals, but they left the custom software loophole alone and kept exemptions for downloaded music, movies and games.
The reporting also makes the point that while there are some genuinely wasteful tax breaks out there that mainly benefit the wealthy, many of the biggest tax expenditures actually have broad public support. Things like not taxing groceries and medicine, not taxing employer healthcare benefits, and letting homeowners deduct mortgage interest are popular with regular people and voters. The columnist suggests it's unlikely that this new legislation will produce the kind of revenue increase that its sponsors are hoping for, since tackling the really big tax breaks would be politically difficult.
What I'm seeing locally here in the Bay Area and especially in Fremont and across the East Bay is that this kind of tax policy debate often doesn't directly hit our region's real estate market in obvious ways. But it does matter for the overall health of public services and government budgets that affect property values and quality of life. As a broker, I pay attention to things like this because they shape the economic backdrop for where people want to buy and invest. When public services are funded well, neighborhoods tend to be stronger.
