Campbell (R-Irvine) is a California State Senator representing
the 35th District
in Orange County. He represents the cities of Newport
Laguna Beach, Irvine, Costa Mesa, Huntington Beach, Seal Beach
and Cypress. He can be reached through his Senate website
and through the website
for his California Senate campaign. [go to Campbell index]
Balks At Federal Tax Code
Expensive complications just for California taxpayers...
[John Campbell] 3/11/05
It's that dreadful time of year again - time to prepare and
file your federal and state income tax returns.
Thankfully, during the last four years the Bush administration
has enacted a host of new tax benefits, deductions or cuts. Every
taxpayer who pays federal tax is paying less because of these
On the other hand, California is one of only a handful of states
that has its own separate income tax code and whose codes don't
automatically conform with changes in the federal code. (Incidentally,
having our own separate code wastes taxpayers' money and the
government's money, but that is an issue for another column.)
When the federal government changes the federal tax code, the
Legislature has the opportunity to change the state tax code
to match those changes. During the Clinton era - when the federal
changes were all tax increases - California was quick to adopt
However, since 2002 - during which time many of the federal
changes were tax reductions - the Legislature has not adopted
a single significant federal change. Therefore, the federal and
California tax codes are becoming increasingly different, and
therefore more complex and costly. And your California taxes
continue going up, while your federal taxes are going down.
Here arejust a few illustrations of things you can do on your
federal tax return that you can't do on your state tax return:
Family leave: You are now paying additional payroll tax for
the family leave program passed by California during the Gray
Davis era. You can deduct that additional tax for federal purposes
but not on your state tax return.
Health Savings Accounts (HSAs): An HSA enables people to get
a cheaper high-deductible health insurance plan and then save
the money on a pre-tax basis to cover the deductible.
But naturally, the Democrats in the Legislature have rejected
bills to allow Californians to have this cost-effective means
of saving for their own health care needs, all the while decrying
the cost of health insurance and the number of uninsured. In
fact, California will tax you on any money that you or your employer
put into the plan and, in some cases, you will get a 10 percent
penalty for participating!
are happy to tax you for a multibillion-dollar, government-run
health care plan, but the concept of allowing
you a tax deduction to provide for yourself is "too costly" to
the state treasury. This is outrageous.
Depreciation: Federal law allows people to deduct depreciation
of assets at a much faster rate than state law does. This means
lower federal tax and higher state tax. It also means often keeping
three sets of books: one for bookkeeping purposes, one for federal
tax purposes and a third for California tax purposes.
Small business: If by chance you are trying to operate a small
business, there are literally dozens of new federal tax breaks,
particularly for start-up companies. California allows none of
these deductions, which would help offset the additional regulatory
and legal burdens this state imposes.
Foreign income: If your job transfers you overseas for a while
and you earn income on which you must pay taxes in a foreign
country, federal tax law allows you to exclude that income from
federal taxation. California makes you pay tax on it so you are
The result is that people working for multinational companies
often change their state of residence to Florida while in an
The truth is that lower taxes often lead to more total tax revenue
because of the increase in economic activity engendered by the
tax decrease. Keeping successful people here to pay taxes in
this state is far better than overtaxing them to the point that
they pack their bags and pay all of their taxes elsewhere.
This debate is all driven by an unyielding Democrat ideology
insisting that government must take and spend more of your money
from you because you cannot be trusted to spend or invest it
yourself. That is ultimately the great divide over health care,
Social Security, pensions and tax policy. Remember that as you
fill out your increasingly expensive and needlessly complex California
income- tax return this year. CRO